Over the past few years, oil prices have significantly declined. A supply glut in 2014 and 2015 led to some of the lowest prices the market has seen in recent years. In turn, securities values also dropped. The volatile energy sector experienced significant turmoil, and many energy companies were negatively impacted when global crude oil prices fell below $40 per barrel at the end of 2015. This was the lowest level since early 2009, as supply was in excess of global demand. Oil and gas companies experienced a spike in bankruptcies, which have left many investors reeling.
Many financial advisers recommended high yielding investments in the oil and gas industry, but they may have failed to fully inform their clients of the inherent risks. Many brokerage firms and financial advisors recommended and represented oil and gas investments as high quality income producing investments often for elderly and retirees looking for income. Also, many financial advisors over concentrated their clients in these oil and gas sector investments, which include high-yield junk bonds, stocks, master limited partnerships (MLPs), and structured products.
Customers across the country were sold these high-risk energy sector investments by brokerage firms, including:
- Barclays Capital
- BB&T Capital Markets
- Credit Suisse
- Deutsche Bank
- Edward Jones & Co.
- FBR Capital
- Hilliard Lyons
- JP Morgan
- Merrill Lynch
- Morgan Stanley
- Raymond James
- RBC Capital Markets
- Robert W. Baird
- UBS Financial Services
- Vector Global
- Wells Fargo
Recovering Losses Through FINRA Arbitrations
Investors seeking recourse for losses from investments in the volatile energy sector are required to file their disputes in FINRA arbitration. Erez Law has been retained by investors to file FINRA arbitration claims against brokerage firms to recover their losses. Our firm has been very successful in making recoveries for our clients that reside throughout the United States.
A broker must have reasonable grounds for each recommendation made to investors considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance. In addition, before a firm offers a security to its customers, the firm must conduct due diligence, investigating the facts surrounding the security, to confirm that it is suitable for any customer of the firm. The suitability of an investment for a particular individual is at the center of the investment process and one of the key duties owed by a firm and its broker to the customer. A firm may be held liable for its failure to recommend suitable investments to its customers. Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, brokerage firms across the country may be liable for investment or other losses suffered by their broker’s customers.
At Erez Law, many of our clients come to us because of our specialization in helping individuals who suffered losses in unsuitable and fraudulent oil and gas investments. We use considerable legal resources to help investors who trusted reckless and unethical financial advisors. We have filed FINRA arbitration cases against or are investigating brokerage firms, including Morgan Stanley, RBC Securities, Raymond James, Oppenheimer, UBS, Vector Global, Centaurus, Merrill Lynch, Wells Fargo and others, accountable for dishonest investment advisory practices, unsuitable recommendations, misrepresentation, and over-concentration in connection with securities tied to the volatile energy sector.
By way of example, in one case against RBC Capital Markets, Erez Law represents two investors who lost over $875,000 of irreplaceable savings including retirement savings with financial advisor Paul Blum who allegedly recommended a reckless and unsuitable concentration in speculative energy sector bonds. Blum’s former customers allege that he recommended the customer invest more than 70% of his irreplaceable retirement savings in just a handful of highly correlated and high risk bonds, all of which were labeled as “junk” bonds at that time. Blum is currently not registered with any firm and has 22 disclosures, according to his CRD report, most having to do with unsuitable recommendations of energy sector corporate bond investments.
Lisa J. Lowi, another financial advisor with RBC Capital Markets, also recommended that her clients invest in the risky oil and gas sector. Lowi has more than 30 pending customer complaints regarding a reckless and unsuitable concentration in speculative energy sector bonds that were labeled as “junk” bonds at that time.
Erez Law is currently investigating the following financial advisors who have allegedly sold unsuitable energy related investments and/or made fraudulent representations in connection with recommending energy related bonds, notes, MLPs, and structured products:
- Lisa J. Lowi, RBC Capital Markets
- Paul Blum, RBC Capital Markets
- Daniel Fain, Wells Fargo
- John Bradford Leonard, Wells Fargo
- Kristopher Lee McKoin, Edward Jones & Co.
- Gibran Jose Abdala Hadad, VectorGlobal WMG
- Margaret Mary Lech-Loubet, UBS Financial Services
- Edward Louis Barger, Morgan Stanley
- Andrew Yocum, Morgan Stanley
- Charles Correal, Morgan Stanley
- Mark Gassoso, National Securities Corporation
- Joseph Patrick McGinley, Morgan Stanley
- Gary Lee Richards, J.J.B. Hilliard, W.L. Lyons, LLC
- Jeffrey Randolph Wilson, Wells Fargo
- Abraham Heimann, Oppenheimer & Co., Inc. and Cetera Advisors, LLC
- Irwin Gerald Maisner, RBC Capital Markets, LLC
- Steven Roland Knuttila, Financial Services, Inc.
- Ralph E. DeRose, Wunderlich Securities, Inc.
- Douglas Ray Hardwick, Texas Securities, Inc.
- Scott Vincent Kaup, VSR Financial Services
For investors seeking low or moderate risk investments, concentrating an investment portfolio in high risk energy sector bonds is grossly unsuitable and reckless. This strategy can expose investors to companies that were vulnerable to the same adverse market conditions.
When a prospective client calls us regarding oil and gas investment losses, our team conducts a thorough investigation. A financial advisor needs consent before investing in high risk or aggressive securities. Any investor with a clear history or intent of desiring low risk or moderate risk investments may be able to take action against a financial advisor who recommended high risk investments and junk bonds of companies in the energy sector.
Some of the most common types of advisor misconduct we uncover during the initial phases of our investigation include:
- Unsuitable investment recommendations: Before any advisor recommends investing in a stock, bond, note, or fund, he or she must meet the requirements of the rule for suitability. Every investment must match the investor’s profile for investing and take age, risk tolerance, tax status, goal timeframe, and the need for liquidity into consideration. When advisors recommend a credit poor “junk oil bond” or other high risk oil and gas security or concentrate their clients’ assets in bad energy investments, they may violate suitability standards
- Fraudulent misrepresentations and omissions: Investment advisors must disclose all material risks related to an investment recommendation and cannot mislead an investor about such risks. By either misrepresenting the supposed safety of an investment or by failing to disclose the risks of a particular investment, a stockbroker may have engaged in fraud. Many advisors simply failed to disclose to their clients that many oil and gas investments such as junk bonds, MLPs, and private placements may involve a high degree of risk. If so, the financial advisor may have engaged in actionable fraud upon which a recovery may be based.
If an advisor concentrated your investments in a high risk oil and gas investment program without understanding the risks associated with your investment, violated FINRA Rule 2111 (suitability), or engaged in an act of fraud, consider filing an arbitration claim with FINRA to pursue restitution. Our team of financial securities attorneys have experience with FINRA arbitration, and we know how to hold brokerages and advisers liable for their indiscretions.
Energy Sector Suffers Massive Bankruptcies
The price of crude oil has always been difficult to predict and volatile to market fluctuations. The year 2012 was a great one for United States oil companies, which were thriving in a market that was reaping the highest crude oil prices on record, hovering at around $120 per barrel. Between 2011 and 2015, U.S. oil and gas companies accrued an additional $150 billion in debt as they pressed for growth to take advantage of high oil prices. Following that high, worldwide demand for crude oil weakened and oil prices in the industry dipped in 2014 and 2015, following a supply glut that lowered the cost of crude oil to below $40 per barrel at the end of 2015. This in turn caused the value of many securities to also drop, and some companies were left with no other choice but to declare bankruptcy as they could not withstand the low oil prices.
According to the latest statistics from HaynesBoone, 114 oil and gas producers in the United States and Canada filed for bankruptcy since 2015, accounting for approximately $74.2 billion in cumulative and secured debt. In 2016 alone, 70 producers filed for bankruptcy, representing $56.8 billion in cumulative secured and unsecured debt. Of the exploration and production (E&P) filings in 2015 and 2016, 51 were in Texas, 17 in Delaware, 6 in Colorado, 5 in New York, 4 in Louisiana, and the remainder were scattered across the United States. Additionally, there were 18 bankruptcy filings in Canada during this period.
The largest bankruptcy filings of more than one billion dollars in 2015 and 2016 include:
- Sandridge Energy, Inc. ($8.26 billion)
- Linn Energy, LLC ($6.06 billion)
- Breitburn Operating Lp ($5.8 billion)
- Pacific Exploration & Production Corp. ($5.32 billion)
- Samson Resources Corporation ($4.33 billion)
- Ultra Petroleum Corp. ($3.79 billion)
- Enquest Plc ($3.23 billion)
- Halcón Resources Corporation ($3.22 billion)
- Sabine Oil & Gas ($2.86 billion)
- Energy Xxi Ltd ($2.75 billion)
- Midstates Petroleum Company, Inc. ($2.13 billion)
- Quicksilver Resources ($2.07 billion)
- Chaparral Energy, Inc. ($1.84 billion)
- Berry Petroleum Company, LLC ($1.77 billion)
- Stone Energy Corporation ($1.44 billion)
- Atlas Resource Partners, L.p. ($1.36 billion)
- Venoco, Inc. ($1.28 billion)
- Swift Energy Company ($1.23 billion)
- Penn Virginia Corporation ($1.25 billion)
- Energy & Exploration Partners, Inc. ($1.19 billion)
- Magnum Hunter Resources Corporation ($1.1 billion)
- Milagro Oil & Gas, Inc. ($1.07 billion)
And according to the latest estimates from Bernstein Research, we will see more than $400 billion in high-yield energy debt in the next two years, which indicates that there are many more bankruptcies yet to come.
Unfortunately, many financial advisors recommended bonds, notes, MLPs and stock issued by these and other energy companies that have filed for bankruptcy. At Erez Law, our job is to protect investors from unfair losses as the result of unscrupulous practices of financial advisors employed by brokerage firms including RBC Securities, Morgan Stanley, Merrill Lynch, Raymond James, UBS and many other brokerage firms across the country. We have the resources and the experience needed to pursue investment firms on our clients’ behalves.
Erez Law Represents Investors in Oil and Gas Junk Bonds
A junk bond is a high yield and high risk security that is rated “speculative” by a a major rating agency such as Standard & Poors, Moody’s or Fitch. If a rating agency believes that an investor’s prospects of receiving all scheduled interest payments and repayment of principal at maturity is uncertain, they will rate the bond below investment grade or what is commonly referred to as “junk.” Junk bonds have a speculative nature and a higher default risk and yield in relation to investment grade bonds with a higher credit ranking. Anyone unprepared to take on the high risk nature of junk bonds can quickly experience thousands or millions of dollars in unrecoverable losses.
Many investors lost money on junk energy bonds issued by companies such as:
- Alpha Natural Resources
- Swift Energy Co.
- Arch Coal Inc.
- Linn Energy
- SandRidge Energy
- Basic Energy Services
- Odebrecht Oil and Gas
- Arch Coal Inc.
These companies and many others have resorted to bankruptcy protection, defaulting on the bonds, and causing investors to lose the vast majority of their investments.
Linn Energy, LLC was an oil and natural gas company headquartered in Houston, Texas. When global crude oil prices dropped, Linn Energy accrued significant debt. According to a statement on their website, Linn Energy, LLC filed a voluntary petition for restructuring under Chapter 11 of the Bankruptcy Code in May 2016 to alleviate itself of $5 billion in debt. In February 2017, LINN Energy, Inc. was formed as the reorganized successor to Linn Energy, LLC.
SandRidge Energy is an oil and natural gas exploration and production company headquartered in Oklahoma City, Oklahoma. Due to high debt and low commodity prices, the company amassed more debt than they would sustain. In May 2016, the company filed for bankruptcy, and in October 2016 they emerged from bankruptcy, eliminating $3.7 billion in debt from its reorganization and opening up $500 million in liquidity.
Erez Law represents investors for claims against brokerage firms across the United States for losses due to investments in energy junk bonds and notes. If you have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation.
Erez Law Represents Investors with Losses in MLPs
Master limited partnerships (MLP) are limited partnerships that are publicly traded and combine the tax benefits of a limited partnership with the liquidity of publicly traded securities. MLPs are offered in two classes: limited partners and general partners. Limited partners are comprised of investors who purchase units in the MLP to provide the capital for the operation and receive income distributions from the MLP’s cash flow. On the other hand, general partners manage the day-to-day operation of the MLP and receive compensation based on the MLP’s performance. Many financial advisors recommended MLPs to elderly and retired investors seeking income during their retirement years and often represented these investments as bond alternatives. They were not. Regrettably, many investors have only learned the true risks associated with MLPs and MLP funds after they sustained massive losses.
Many investors lost money with MLPs and MLP funds, such as:
- Sandridge Energy
- Goldman Sachs MLP Energy Return Fund
- Center Coast MLP & Infrastructure Fund
- Kayne Anderson MLP
- Clearbridge American Energy MLP
- Seadrill Ltd.
- OPI Steelpath MLP Income C
- Cobalt International Energy
- Cushing MLP Total Return Fund
- Center Coast MLP Focus A
- CVR Refining
- Breitburn Energy Partners
- Linn Energy
- Atlas Resource Partners
- Vanguard Natural Resources
- Energy XXI
- Penn West Petroleum
Breitburn Energy Partners, Linn Energy, Atlas Resources, Energy XXl, and Vanguard Natural Resources have since filed for Chapter 11 of the U.S. Bankruptcy Code.
Breitburn Energy Partners
Breitburn Energy Partners is an independent oil and gas master limited partnership focused on the development and production of oil and gas properties throughout the United States. The decline in commodity prices beginning in 2014 placed stress on the industry as a whole, and the company’s debt burden became unsustainable. Breitburn has since filed for Chapter 11 of the U.S. Bankruptcy Code to restructure its balance sheet in May 2016 and eliminated $5.8 billion in debt, according to a statement on the company’s website
Investors have lost money in MLPs and have also been stuck with large tax bills in the MLPs due to taxes associates with MLP structure. MLPs are a way for sophisticated investors to own a business without double taxation that typically comes with corporations, and taxes paid are typically less than if the investor had shares of that same company’s stocks. With MLPs, up to 90% of the capital distribution, including write-offs and depreciation of equipment, makes most of the out-of-pocket tax deferred. Typically, most investors won’t pay taxes on MLPs until withdrawal, if at all. When it came to some oil and gas MLPs, they were forced to restructure debts, which then forced investors to pay income taxes on their share of the debt that was forgiven by creditors. So many investors lost on their investment in MLPs and were left with significant tax liabilities.
Erez Law represents investors for claims against brokerage firms across the United States for losses due to investments in MLPs and MLP funds. If you have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation.
Erez Law Represents Investors in Energy Linked Structured Products and Private Placements
Structured notes or products are complex securities derived from or based on a single security or index, basket of securities or indices, a debt issuance, a commodity and/or a foreign currency. Most structured products pay an interest or coupon rate based on certain defined parameters. Structured products typically consist of a note and a derivative, most often an option. While the note pays interest, the derivative defines the payment at maturity. Despite the fact that structured products most often involve options, they are typically marketed as debt securities. Structured products can offer a form of principal protection and frequently cap the upside in the underlying investment. Additionally, structured products do not trade on an exchange and are generally not liquid investments.
Many brokerage firms issued structured products linked to companies in the energy sector. For example, UBS sold reverse convertible notes linked to the energy sector. UBS recently settled a claim with the Securities and Exchange Commission (SEC) related to its sale of structured notes such as UBS Trigger Yield Optimization Notes. In the settlement with the SEC, “UBS has agreed to pay more than $15 million to settle charges that it failed to adequately educate and train its sales force about critical aspects of certain complex financial products it sold to retail investors,” according to the SEC. “The SEC’s order finds that UBS failed to develop and implement policies and procedures reasonably designed to educate and train UBS registered representatives in connection with the sale of reverse convertible notes (RCNs) so that they could form a reasonable basis to make suitable recommendations.” The report explained that without adequate training, registered representatives made unsuitable recommendations in the sale of RCNs to retail customers despite their investment profiles or goals. In fact, UBS sold approximately $548 million in RCNs to more than 8,700 relatively inexperienced retail customers.
Structured products, such as the UBS Yield Optimization Notes investments, are often speculative and unsuitable for many types of investors, especially elderly customers who are looking to preserve their principal and live off of interest made on those investments.
Many UBS customers lost money with structured notes, including:
- UBS Trigger PAOS Cree
- USB Trigger PAOS US Steel
- UBS PAOS Trigger Peabody Energy
Financial advisors across the country also recommended oil and gas private placements, which are typically high-risk and illiquid investments that do not have to be registered with the Securities and Exchange Commission (SEC) and have minimal regulatory oversight. Private placement investments are not publicly traded and are typically sold to individuals or a group of people. These securities are typically purchased by wealthier and more experienced investors.
Private placements such as Noble Royalty Access Fund are risky investments for many investors. Noble Royalty Access Fund specializes in the acquisition, funding and management of coal, oil and natural gas royalties and is one of the largest independent buyers of oil and gas royalties in the U.S. Oil and gas private placements, such as the Noble products, are known to be speculative ventures that are best suited for experienced and accredited investors.
Erez Law represents investors for claims against brokerage firms across the United States for losses due to investments in structured products and private placements tied to the energy sector. If you have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation.
Erez Law Represents Investors in Energy Linked Stocks and Private Placements
Investment advisors also recommended oil and gas company stocks to investors. Stocks tied to the oil and gas sectors are closely tied to the price of crude oil and experience substantial losses due to falling oil prices. Due to the high risk nature of stocks, they are subject to market volatility and are not suitable for conservative investors who are looking to maintain principal. Many investors lost money with stocks tied to the energy sector, including ForceField Energy and BP Prudhoe Bay Royalty Trust.
ForceField Energy, formerly named Sunsi Energies Inc., offers products and solutions that focus on sustainable energy solutions and improved energy efficiency including LED and other commercial lighting products. In April 2015, the company’s former chairman was charged by U.S. officials with scheming to boost the company’s share price by making secret payments through a Belize-based firm. With the help of the stock price boosting scheme, the stock price jumped from $4.55 in January 2014 to $7.82 in April 2015. In May 2015, the company delisted its stock from the Nasdaq Capital Market as a result of uncertainties related to future earnings and operations reported to the SEC. As of April 2017, the stock is still currently unlisted.
BP Prudhoe has a dividend yield of over 12% as of April 2017, however according to recent reports, royalty payments will continue until 2020 and then will cease in following years, or sooner. Due to low oil prices, BP Prudhoe and other oil producers have cut back investments because it’s not economical at current oil prices. Investing in stocks such as BP Prudhoe is betting on higher oil prices in the future, which is not certain at this time. BP Prudhoe has seen some large variability in price. It has seen a 5-year high of $124.86 in April 2012 and a decline in price to where in April 2017 it trades at just over $20.
Erez Law represents investors for claims against brokerage firms across the United States for losses due to investments in these stocks and many others tied to the energy sector. If you have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation.
Red Flags of Oil and Gas Investment Fraud
All investors can protect their rights to suitable investments under FINRA rules. Keep these red flags in mind and contact an attorney, FINRA representative, or SEC representative if you suspect fraud:
- Marketing ploys. Investment scams often begin with strong sales pitches. Professionals skilled in the art of negotiation use phone calls and digital communications to sell the opportunity. They may make unproven claims focusing on the oil and energy opportunity’s low risk nature, previous track record of success, or the time sensitive nature of the investment. Marketing ploys are the easiest red flags to spot and serve as clear signs the investment deserves a closer look.
- Unreasonable requests for legal waivers. Some advisors may try to sidestep legal requirements with waivers that might strip the advisor of legal liability for the investment outcome. Most legitimate advisors must hold a valid registration with the SEC and a membership with FINRA. You can check the status of both easily and quickly online for peace of mind.
- Inability to answer questions. Ask your advisor as many questions as you need to feel comfortable with the oil and energy investment. Discuss the well history, reserves estimations, experience with energy stocks and bonds, and third party reports from engineers and other specialists who would reasonably work onsite. If the advisor cannot answer or is unwilling to find the answers and quickly provide sufficient information, take a closer look at the investment arrangement.
While these red flags can alert you to a bad investment beforehand, many cases of investment fraud begin legally and slowly become fraudulent over time. If you ever feel uncertain about your investment returns or partnership transparency, examine your portfolio and possible legal remedies.
Contact Us for a Free Consultation
Erez Law has the resources, experience and skill to hold even the largest brokerage firms accountable. We routinely handle matters originating in across the United States including Puerto Rico, as well in Latin America including in countries including Mexico, Argentina, Colombia, and Venezuela.
If you have experienced investment losses or financial irregularities as a result of unsuitable or fraudulent investment practices, we are here to help. We are not afraid of taking on corrupt firms, and we can and will combat some of the largest brokerage firms throughout the United States. Count on our experience to successfully take you through the FINRA arbitration process.
Please call us at 888-840-1571 for a free consultation or complete our contact form to investigate your recourse for losses in the volatile energy sector. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.