Securities Lawyers Blog
The law offices of Gana Weinstein LLP continue to report on investment losses suffered by investors in oil and gas investments that brokerage firms have increasingly recommended to retail investors in recent years. These investments include 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
Recently, the according to Bloomberg, BlackGold Capital Management, the energy-focused hedge fund that manages the BlackGold Opportunity Fund LLC and BlackGold Opportunity Offshore Fund LLC (BlackGold Funds) announced that losses in December 2014 were almost triple its initial report after an auditor examined how it valued debt holdings and certain changes were made to the valuation.
According to SEC records, the BlackGold Opportunity Fund was launched in 2009. Since that time the Fund has touted an annualized rate of return of 20% since inception. In 2014, the Fund suffered 12 percent decline compared with a 13 percent loss for oil and gas companies in the Bloomberg high-yield bond index. KKR & Co., which acquired nearly a 25% stake in BlackGold Capital Management reported that BlackGold lost only 6 percent in December originally which was recently revised to 17%. Given the enormous decline already experienced, it is possible that the BlackGold Funds will continue to suffer substantial declines unless the price of oil experiences a tremendous rebound in the near future.
The increased loss was reported after the BlackGold Funds switched valuation methods for December to estimating the fair value of some of the securities instead of using actual prices. This changed calculations during an audit leading to the reporting of greater markdowns.
Oil and gas private placements are prone to suffer from enormous risks that often outweigh any potential benefits including securities fraud, conflicts of interests, high transaction / sales costs, and investment risk. Brokers who sell these products are obligated to understand the risks of these investments and convey them to clients. In addition, brokers must make sure that the investment is appropriate for the particular investor based upon their needs and financial objectives.
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.
Investors who have suffered losses in oil & gas related investments are encouraged to contact our firm. Brokers who sell oil and gas investments have an obligation to make sure that the investment is suitable for the investor and to disclose all the risks associated with the product. Our consultations are free of charge and the firm is only compensated if you recover.