Articles Tagged with mutual funds

shutterstock_168478292Atlas Energy Group (NYSE:ATLS) is the general partner of Atlas Resource Partners (NYSE:ARP), a sponsor of oil and gas private placements and investments.   The investment attorneys at Gana Weinstein LLP continue to report on investor losses in oil and gas related investments, like Atlas.

Atlas Energy Group and Atlas Resource Partners stock have both completely collapsed recently with both losing over 95% of their value over the past 2 years. Trying to unravel the business of the Atlas entities is nearly impossible. Even Atlas’ website fails to provide any meaningful understanding as to the business.

The website states that the business of Atlas Energy involves the ownership of: 1) 100% general partner interest and incentive distribution rights of Atlas Resource Partners, LP an exploration and production MLP; 2) 25 million ARP units, which includes ~21 million common units and 3.75 million Class C Preferred units in ARP; 3) 80% general partner interest and incentive distribution rights, as well as an 8% limited partner interest in Atlas Energy’s E&P Development Subsidiary; 4) 16% general partner interest and 12% limited partner interest in Lightfoot Capital Partners, which has a 40% limited partner interest in Arc Logistics Partners LP (NYSE: ARCX), an independent U.S.-based energy logistics service provider. Did this description clarify things?

shutterstock_140321293Reef Oil and Gas Companies located in Richardson, Texas, is a sponsor of oil and gas private placements and investments.   The investment attorneys at Gana Weinstein LLP continue to report on investor losses in oil and gas related investments, like Reef Oil and Gas.

Investors often do not appreciate the risks when investing in oil and gas private placements. Even before the collapse of oil prices it was rare for investors to make money on oil deals. According to Reuters, of 34 deals Reef Oil and Gas has issued since 1996, only 12 have paid out more cash to investors than they initially contributed. Reuters also found that Reef sold an additional 31 smaller deals between 1996 and 2010 taking $146 million from investors and only paying out just $55 million.

If investments in oil and gas private placements rarely succeed during oil booms, then they will certainly fail under current market conditions. According to Bloomberg, many oil companies are in trouble as U.S. high-yield debt issued to junk-rated energy companies grew four-fold to $208 billion. Most of these companies are now struggling to stay afloat with oil prices at $45. Many of these companies relied upon high energy prices in order to sustain their operations. As reported by the Wall Street Journal the drop in oil and energy prices and the industry downturn has made it difficult for many companies to refinance their debts.

shutterstock_188631644The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2011025610501) against brokerage firm Braymen, Lambert and Noel Securities, Ltd. (BLNS) and the firm’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Compliance Officer (CCO) Shannon Braymen (Braymen) resulting in a monetary sanction. FINRA’s allegations were that from April 2007 to November 2011 BLNS, acting through Braymen, failed to supervise its private placement securities business and the activities of brokers located in two offices. The firm was also accused of failing to register those two branch office locations. In addition, FINRA found that BLNS failed to conduct or to adequately document branch office inspections, and had inadequate supervisory systems and written supervisory procedures for non-branch office locations. Finally, FINRA found that BLNS and Braymen failed to capture and retain certain email correspondence.

BLNS is a member of FINRA and registered as a broker-dealer since March 2003, as a full-service broker-dealer. BLNS currently employs approximately 24 brokers and operates out of 4 branch offices. The firm conducts a securities business in corporate debt securities, over-the-counter equity securities, US government securities, mutual funds, options, private placements and variable contracts. BLNS is also authorized to underwrite corporate securities, proprietary trading and investment advisory services. Braymen entered the securities industry in February 1995. During Braymen’s career she has obtained various securities licenses and had supervisory responsibility for each of the supervisory areas complained of by FINRA.

FINRA’s findings highlighted supervisory deficiencies in a number of areas. One of FINRA’s findings was that BLNS and two brokers located in an unregistered branch office in San Antonio, Texas participated in nine private placement offerings. BLNS and Braymen were accused of failing to adequately supervise the firm’s participation in these nine offerings. FINRA found that the firm had no documentation of principal review and approval of any of the private placement documents, no documentation that a principal of the firm had conducted due diligence, and no documentation of principal review and approval of customer subscription documents. Review of subscription documents are required to determine the suitability of the investments for customers.

shutterstock_89758564The investment attorneys of Gana Weinstein LLP are interested in speaking with clients of Detlef Schoeppler (Schoeppler). According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Schoeppler has been the subject of at least 10 customer complaints, one criminal matter, and three judgments or liens. The customer complaints against Schoeppler allege securities law violations that claim unsuitable investments in various investment products including REITs, variable annuities, and mutual funds. The most recent complaint was filed in August 2012, and alleged $77,569 in damages due to claims that the broker recommended a variable annuity purchase in June 2011 that was misrepresented to the customer. In addition, the customer alleged that the fees were not fully disclosed and that there were trades made without the client’s authorization.

In addition, in July 2014, two tax liens were imposed on Schoeppler. One lien is for $184,519 and the other is for $182,691. A broker with large liens are an important consideration for investors to consider when dealing with a financial advisor. An advisor may be conflicted to offer high commission investments to customers in order to satisfy liens and debts that may not be in the client’s best interests.

Schoeppler entered the securities industry in 1996. Since June 1996, Schoeppler has been associated with Ameriprise Financial Services, Inc. out of the firm’s Tampa, Florida branch office location.

shutterstock_39128059The law offices of Gana Weinstein LLP are currently investigating investors who have suffered losses in in now bankrupt coal company, Patriot Coal Corp (Stock Symbols: PCX) (Patriot Coal). Patriot Coal is the third largest coal producer in the eastern US. Patriot Coal has operations in the eastern US in Central Appalachia, Northern Appalachia, and the Illinois Basin.

According to Reuters, Patriot Coal filed for bankruptcy protection on in May 2015, just 18 months after emerging from its previous Chapter 11. The bankruptcy filing has been prompted by low energy prices. In order to support its mining and marketing operations during bankruptcy, the company has secured up to $100 million in financing. Patriot Coal has listed assets and liabilities of more than $1 billion in its bankruptcy petition. Patriot Coal also has 1.4 billion tons of proven and probable coal reserves. In the prior bankruptcy, Patriot received an agreement with its former parent Peabody Energy to provide $400 million to cover health care benefits for retired mine workers.

Patriot Coal is only one of several energy related companies our firm has been tracking through bankruptcy including Xinergy Ltd, Dune Energy Inc, BPZ Energy Inc, RAAM Global, Sabine Oil & Gas Corp., and Quicksilver Resources Inc. In addition, Walter Energy Inc, another coal produce, has skipped an April interest payment on its debt

shutterstock_168737270Long time readers of this blog know that we have previously reported that brokerage firms have increasingly recommended that retail investors invest heavily in various types of oil & gas investments including private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks. See Overconcentrated in Oil and Gas Investments?, MLP Fund MainStay Cushing Royalty Energy Hurt by Failing Oil & Gas Prices; Oil and Gas Investments – Issuers Profit While Investors Take All the Risk

For instance, MLPs are publicly traded partnerships where about 86% of approximately 130 MLP securities, a $490 billion sector, can be attributed to energy and natural resource companies. Billions more have been raised in the private placement market. These oil and gas private placements suffer from enormous risks that often outweigh any potential benefits including securities fraud, conflicts of interests, high transaction / sales costs, and investment risk.

These investments have been recommended by brokers under the assumption that oil & gas would continue to be sold at around $100 and increase steadily over time. However, last summer the price of oil & gas plummeted due to a strengthening dollar and increased global supply of oil and remains below $60 to this day. Some experts are saying that if production volume continues to be as high as it currently is and demand growth weak that the return to $100 a barrel is years away.

On June 16, 2014, the Financial Industry Regulatory Authority (FINRA) announced that it fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for charging excessive fees relating to the sales of mutual funds in retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to those customers who had been wrongfully overcharged. The mandated restitution was in addition to the $64 million Merrill Lynch has already paid to compensate disadvantaged investors.

Mutual funds offer several different classes of shares. Each class has separate and distinct sales charges and fees. Generally, Class A shares have the lowest fees as compared to Class B and Class C. Class A shares, however, charge customers an upfront sales charge. This initial sales charge, however, is usually waived for retirement accounts, with some funds also waiving these fees for charities.

Merrill Lynch’s retail platform offers a variety of different mutual funds. Most of those funds explicitly offered to waive the upfront sales charges and disclosed those waivers in their respective prospectuses. According to FINRA, despite these disclosures, Merrill Lynch did not actually waive the sales charges many times since at least January 2006. On various occasions, Merrill Lynch charged the full sales charges to certain customers who qualified for the waiver. In doing so, Merrill Lynch allegedly caused nearly 41,000 small business retirement plan accounts and 6,800 charities and 403(b) retirement accounts for ministers and public school employees to pay sales charges when purchasing Class A shares. Those that did not want to pay the fee for the Class A shares were forced to purchase other share classes that needlessly exposed them to greater ongoing costs and fees. According to FINRA, Merrill Lynch became aware of the fact that its small business retirement plan customers were being overcharged, but yet they continued to sell the costly mutual fund shares and never reported the issue to FINRA for over five years.

shutterstock_61142644The Financial Industry Regulatory Authority (FINRA) has sanctioned Infinex Investments, Inc. (Infinex Investments) concerning allegations that from April 2009, through March 2011, Infinex Investments permitted 35 registered representatives who received minimal training on inverse and inverse-leveraged Exchange-Traded Funds (Non-Traditional ETFs) to sell them to customers. FINRA alleged that the firm and brokers failed to perform reasonable due diligence to understand the risks and features of the product necessary in order to recommend 229 customers approximately 835 transactions in these products. In addition, FINRA also found that some of the recommendations were also unsuitable on a customer specific basis. Finally, FINRA also found that Infincx Investments also failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable FINRA rules relating to the sale of Non- Traditional ETFs.

Infinex Investments has been a FINRA firm since 1994, is a full service broker-dealer with its primary business being the retail sale of mutual funds and variable annuities. The firm employs approximately 400 registered representatives located in approximately 500 branches.

As a background, ETFs attempt to track a market index. ETFs can be either attempt to track the index or apply leverage in order to amplify the returns of an underlying stock position. A leveraged ETF with 300% leverage will attempt to return 3% if the underlying index returns 1%. Nontraditional ETFs can also be designed to return the inverse or the opposite of the return of the benchmark. Leveraged ETFs are generally used only for short term trading. The Securities Exchange Commission (SEC) has warned that most Non-Traditional ETFs reset daily and are designed to achieve their stated objectives on a daily basis. In addition to the risks of leverage the performance of Non-Traditional ETFs held over the long term can differ drastically from the underlying index or benchmark during the same period. FINRA has also acknowledged that leveraged ETFs are complex products that carry significant risks that are typically not suitable for retail investors.

shutterstock_168853424The Financial Industry Regulatory Authority (FINRA) sanctioned broker-dealer J.P. Turner & Company, L.L.C. (JP Turner) concerning allegations JP Turner failed to establish and enforce reasonable supervisory procedures to monitor the outside brokerage accounts of its registered representatives. In addition, FINRA alleged that JP Turner failed to establish an escrow account on one contingency offering and broke the escrow without raising the required minimum in bona fide investments.

This isn’t the first time that FINRA has come down on JP Turner’s practices and that our firm has written about the conduct of JP Turner brokers. Those articles can be accessed here (JP Turner Sanctioned By FINRA Over Non-Traditional ETF Sales and Mutual Fund Switches), here (JP Turner Supervisor Sanctioned Over Failure to Supervise Mutual Fund Switches), and here (SEC Finds that Former JP Turner Broker Ralph Calabro Churned A Client’s Account).

JP Turner has been FINRA firm since 1997. JP Turner engages in a wide range of securities transactions including the sale of municipal and corporate debt securities, equities, mutual funds, options, oil and gas interests, private placements, variable annuities, and other direct participation programs. JP Turner employs approximately 422 financial advisors and operates out of 185 branch offices with principal offices in Atlanta, Georgia.

shutterstock_115937266A recent article by Bloomberg highlighted a disturbing trend whereby brokers of independent brokerage firms have been able to make substantial profits while providing allegedly unsuitable investment advice and potentially tanking the retirement savings of potentially hundreds and maybe thousands of blue collar workers. These brokerage firms have been able to tap into large corporations with thousands of employees with 401(k) plans and convince them to rollover their accounts to their firm into IRAs. Once there, the brokers recommend unsuitable investments in an already tax-deffered account such as municipal bond funds and variable annuities. Some of the investments are extremely speculative and carry huge commissions and fees. In the end the brokers make hundreds of thousands in commissions while the investor is left with a depleted retirement account.

How the practice works is that brokers form connections with large employers in order to pitch their investment services to employees. Because the employer allows the broker to use their offices and facilities to pitch their investment services, employees often mistakenly believe that the company endorses or has otherwise evaluated the broker. In fact, these companies often have little to no relationship with the broker or a defined screening process.

According to Bloomberg, employees shifted $321 billion from 401(k)-style plans to individual retirement accounts in 2012. As a result, IRAs account assets are up to $6.5 trillion, more than the $5.9 trillion contained in 401(k)-style accounts. However, the shifts have been used by some Wall Street firms to profit at their client’s expense. IRAs often charge higher fees than 401(k) plans which provides brokers an incentive to promote rollovers.

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