Securities Lawyers Blog
The law offices of Gana Weinstein LLP are currently investigating investor losses stemming from brokerage firm recommendations that placed their clients in oil and gas related investments such as partnerships (private placements), master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks.
Our offices continue to report on investment losses suffered by investors in energy and oil and gas related investments that become increasingly common recommendations to retail investors in recent years. 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.
However, most of these investments do not succeed and the promised payments come to a crawl and then cease altogether in a relatively short amount of time. In fact, oil and gas partnerships are created to benefit banks and issuers, not investors. In the case of oil and gas private placements, between 30-35 cents of every dollar invested typically goes towards management fees, syndication fees, and profits to the promoter as general contractor. Any investment where only 65-70% of your money is working for you is lose-lose proposition under anything other than booming market conditions.
Yet, for years brokers have been luring savers to invest into drilling partnerships with the promise of big payouts. 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.
Before recommending investments in oil and gas companies, 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. 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.
Brokers who sell oil and gas products are obligated to understand the risks of these investments and convey them to clients. Investors who have suffered losses may be able recover their losses through securities arbitration. Our consultations are free of charge and the firm is only compensated if you recover.