Articles Tagged with Private Placements

shutterstock_176284139-300x200Investment fraud attorneys at Gana Weinstein LLP have been investigating Dawson James Securities, Inc. (Dawson James Securities) broker Thomas Curtis (Curtis). According to BrokerCheck Records, Curtis has been subject to 6 customer disputes, one of which is still pending. The majority of these disputes involve unsuitable investment recommendations and the false representation of investments.

In August 2017, a customer alleged that Curtis misrepresented the nature of securities and provided unsuitable investment recommendations to the customer. The customer is requesting $4,952,610 in damages. This dispute is currently still pending.

In October 2015, a customer alleged that from October 2014 to September 2015, Curtis misrepresented the material facts of the investments recommended. The customer has requested $100,000 for damages.

shutterstock_113872627-300x300The financial advisor rating firm Paladin Research & Registry assembled a list of the top 10 investment scams investors are facing today. If you are involved in any of these potential scams, the investment attorneys at Gana Weinstein LLP may be able to help you.

1. Ponzi Schemes

Ponzi schemes came in first-place for having stolen more money than any other type of scam. A Ponzi scheme is a fraudulent investment scam where the scammer promises a high rate of return with little or no risk to investors. Ponzi schemes generate returns for investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. The Ponzi scheme unravels when no more new investors are willing to invest and older investors demand the return of their money. The nature of Ponzi schemes (or pyramid schemes) requires investors (who believe they have a strong investment) to tell friends, family and associates about the investments. The influx of new investors provides scam operators with the assets needed to meet the withdrawal requests of the early investors.

shutterstock_133100114Our firm is investigating potential securities claims against brokerage firms for sales practice violations related to the recommendations of oil & gas and commodities products such as exchange traded notes (ETNs), structured notes, private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and individual stocks.

One investment that advisors may be recommending to clients in order to gain exposure to oil is the iPath S&P GSCI Crude Oil Total Return Index ETN (Symbol: OIL).  OIL is a speculative ETN that attempts to “reflect[] the returns that are potentially available through an unleveraged investment in the West Texas Intermediate (WTI) crude oil futures contract.”  Brokers may be recommending OIL for long-term holding when, in fact, OIL is a risky ETN that is only appropriate for short-term investment speculation on the price direction of oil.

As Morningstar has written, “Due to the extremely specialized exposure of the fund, investors should only consider it for a small position in the satellite portion of a broadly diversified portfolio.”  MorningStar also explained how the futures invested in the fund make the investment inappropriate for long-term holdings and how the price of the fund is not related to the price of oil.  “For example, in 2013 OIL increased 5.6%, close to WTI’s spot price gain of 6.9% for the year. However, over the trailing five-year period OIL lost 1% annualized, compared with an annualized gain of more than 20% for spot WTI over the same period.”

shutterstock_175835072The investment attorneys at Gana Weinstein LLP are investigating the potential unsuitable sales of securities sponsored by APX Energy.  APX Energy claims on its website that it is an independent oil and gas exploration company focusing on the Illinois Basin and other areas in the southern United States. The firm claims over 25 years of experience in the oil and gas industry. The company sponsors several oil and gas private placements.

Our firm has represented many clients in these types of products.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  Alternative investments are only appropriate for a narrow band of investors under certain conditions due to their high costs, illiquidity, and huge redemption charges – if they can be redeemed.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them.  Further, investor often fail to understand that they have lost money until many years after agreeing to the investment.  In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

Investors often do not understand the substantial risks of oil and gas limited partnerships and private placements.  As recently reported in Reuters, when offerings by Atlas Energy LP, another issuer of oil and gas private placements were analyzed, investors only get to see 65-70% of their capital actually put to work on oil and gas projects.  Further, the returns on these projects had more in common with running profitable casinos than investments. Reuters found that slightly more than half of 43 private placements Atlas issued over the past three decades investors lost money or just broke even. While investors lost in more than half of the deals in 29 or 67% of those deals, Atlas actually out-performed their own investors.

shutterstock_179203760The investment lawyers of Gana Weinstein LLP are investigating at least four customer complaints brought before the Financial Industry Regulatory Authority (FINRA) against John McGinnis (McGinnis) working out of Escondido, California alleging the sale of promissory notes, private placements, and private loans.  The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.

At this time it unclear the nature and scope of McGinnis’ outside business activities and private securities transactions.  However, according to McGinnis’ public records his outside business activities includes Orchards of AZ LLC, a real estate business.  Often times, brokers sell promissory notes and other investments through side businesses as accountants, lawyers, or insurance agents to clients of those side practices.

McGinnis entered the securities industry in 1987.  Since July 2008 through September 2015 McGinnis has been associated with RBC Capital Markets, LLC.

shutterstock_20354401The investment attorneys at Gana Weinstein LLP are investigating the potential unsuitable sales of securities sponsored by Waveland Capital Group LLC (Waveland), a purported merchant bank with a core investment focus in the oil and gas exploration and production industry. Waveland claims on its website that it invests in oil and gas exploration and development throughout the Mid-Continent and Permian Basin regions. In addition, Waveland invests capital to special private equity opportunities in select sectors such as medical device, health sciences, technology and manufacturing. Waveland has sponsored the following investments:

  • Waveland Drilling Partners Series III
  • Waveland Resource Partners II, L.P.

shutterstock_182054030Our firm is investigating potential securities claims against brokerage firms over sales practices related to the recommendations of oil & gas and commodities products such as exchange traded notes (ETNs), structured notes, private placements, master limited partnerships, leveraged ETFs, mutual funds, and individual stocks.  Investors may have potential legal remedies due to unsuitable recommendations by their broker to invest in this speculative and volatile area. Targa Resources Partners (Ticker Symbol: NGLS) is a Master Limited Partnership (MLP). About 86% of the total MLP securities market, a $490 billion sector, can be attributed to energy and natural resource companies. Targa Resources Partners has declined about 81% in value over the last two years and is trading at less than $10 a share. According to its website, Targa Resources Partners is a growth-oriented provider of midstream services and one of the largest independent midstream energy companies operating in North America. The company owns, operates, acquires, and develops a diversified portfolio of midstream energy assets.

Our firm continues to file complaints on behalf of investors who have been overconcentrated in MLPs like Targa Resources Partners. Our clients tell us similar stories that their advisors hyped MLPs as high yielding investments without significant discussion of risk. In a recent Associated Press article, common stories of how investors are pitched by their financial advisors on oil and gas private placements were reported on. Often times these products are pitched as ways to ride the boom in U.S. oil and gas production and receive steady streams of income.

In the past year, investors have lost $20 billion in publicly traded in master limited partnerships, publicly traded oil funds. This amounts to an astonishing $8 of every $10 they had invested, according to a report prepared for The Associated Press article. The research does not include losses from $37 billion of bonds sold by the partnerships in the five years since 2010 or losses from private placement partnerships. However, banks like Citigroup, Barclays, and Wells Fargo made an estimated $1.1 billion in fees for selling these products to investors.

shutterstock_132704474According to Reuters, Arch Coal which is the second-largest U.S. coal miner has filed for Chapter 11 bankruptcy in mid-January. The investment attorneys at Gana Weinstein LLP continue to report on investor losses in commodities related investments. Our firm is investigating potential securities claims against brokerage firms over improper sales practices related to recommendations in commodities products such as bonds, exchange traded notes (ETNs), structured notes, private placements, mutual funds, and individual stocks.

Arch Coal plans to cut $4.5 billion in debt from its balance sheet after suffering through a prolonged coal market downturn. Arch Coal has about 4,600 employees. As we have previously reported, coal related companies around the world are being pushed to the brink of bankruptcy due to the falling prices of commodities. Other bankruptcy filings this year include Walter Energy (Stock Symbol: WLTGQ), JW Resources, Patriot Coal, Xinergy, and James River Coal Co. among others. According to Bloomberg, more than three dozen coal operations have filed bankruptcy in just over three years. Due to a combination of factors the combined market value of U.S. coal company shares shrank to $12 billion in late July 2015 from $78 billion in 2011.

In the case of Arch Coal the company became saddled with debt since its 2011 acquisition of International Coal Group and then was unable to overcome a range of negative market trends including a drop in coal prices. The company expects its mining operations and shipments to continue uninterrupted through the reorganization process. According to sources, 25 percent of U.S. coal industry is currently in bankruptcy.

shutterstock_180412949The securities fraud lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) and the agency’s complaint against broker Eric Kuchel (Kuchel). According to BrokerCheck records Kuchel has been the subject of at least five customer complaints, one employment termination for cause, and one financial matter. Many of the customer complaints against Kuchel allege unauthorized trading among other claims. In addition, one complaint filed in June 2015 alleges failure to conduct due diligence on five non-traded private placement transactions resulting in damages of $499,999.

In November 2015, Kuchel’s then brokerage firm LPL Financial LLC (LPL) terminated Kuchel for cause for failing to appear for an interview with FINRA. Thereafter, In January 2016, FINRA filed a complaint (Disciplinary Proceeding No. 2015047966701) alleging that on numerous occasions he failed to appear at for testimony in connection with an investigating into mutual fund transactions and whether he participated in a private securities transaction, a practice known as “selling away” in the industry.

In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

shutterstock_1832895The law offices of Gana Weinstein LLP continue to report on investor related losses and potential legal remedies due to recommendations to investor in oil and gas and commodities related investments. Commodity prices have plummeted due to the economic slowdown in China and the strengthening dollar. Persistently low equity prices for companies in these sectors are ruining balance sheets prompting bankruptcies and debt reduction strategies that may be too little too late.

One such company is Freeport-McMoran (FCX). Analysts studying Freeport worry about lower projected copper prices, risks in Indonesia, and the company’s reluctance to sell assets to raise capital. According to analysts it may already be too late for Freeport. So far the company has taken some steps such as announcing suspending its dividend and reducing capital expenditures. However, the Arizona-based natural resources company has a $20 billion debt load and no meaningfully way to reduce it. Shares of Freeport which traded as high as $38 in 2014 now trade at $4.35 a share.

Before recommending investments in oil and gas and commodities related investments, brokers and advisors must ensure that the investment is appropriate for the investor and conduct due diligence on the company in order to understand the risks and prospects of the company. Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up. However, brokers who sell oil and gas and commodities products are obligated to understand the risks of these investments and convey them to clients.

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