Securities Lawyers Blog
The law offices of Gana LLP recently filed a complaint before The Financial Industry Regulatory Authority (FINRA) on behalf of a investor against brokerage firm David Lerner Associates, Inc. (David Lerner) involving the firm’s financial advisor, Lawrence Merl (Merl) and his recommendation to invest virtually all of the widow Claimant’s savings in an oil & gas private placement – Energy 11, L.P (Energy 11). The Claimant alleged that David Lerner failed to supervise Mr. Merl’s unsuitable recommendation and failed to conduct due diligence on the investment in Energy 11.
Energy 11 has sustained massive losses that appear to have been hidden from investors due to the fact that the sponsor of Energy 11 gets to state its own value to investors. Recently, investors in Energy 11 received value information indicating an approximate 65% loss on the investment. It is possible that the loss if far greater than even the drastic loss already being voluntarily reported by the fund. Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation.
Energy 11, L.P. is a non-traded oil and gas investment. The partnership was formed in 2013 to acquire and develop oil and natural gas properties located onshore in the United States. Energy 11 has raised over $350 million and invested the proceeds in non-operated working interests in approximately 221 existing producing wells and approximately 247 future development locations in the Sanish field located in Mountrail County, North Dakota. Whiting Petroleum Corporation (NYSE:WLL), a publicly traded oil and gas company, operates the Partnership’s well interests in the Sanish field.
The complaint alleges that Energy 11 is the sold exclusively by David Lerner brokers and is one of the firm’s latest exclusive offerings that it aggressively solicits to its investor base. According to the allegations, Energy 11 is run by the same Apple REIT team that resulted in David Lerner and Apple REIT incurring multiple regulatory complaints and private lawsuits. Energy 11 is controlled by Glade M. Knight whose background is being “the founder and Chairman of Apple Hospitality REIT, Inc.”
The Claimant alleges that Mr. Knight has no experience in the oil & gas industry. Further, Mr. Knight’s management practices at Apple REIT resulted in the company agreeing to pay $32 million to former shareholders of Apple REIT Ten on the eve of trial. The settlement is the largest derivative settlement in the Fourth Circuit and alleged that Apple REIT Mr. Knight arranged a merger “in order to line his own pockets and those of other company insiders, including his son, Justin Knight.” The merger produced a $65 million windfall for Mr. Knight at the expense of investors. The complaint alleges that given Mr. Knight’s lack of oil & gas experience plus his dubious conduct in prior securities dealings it is astonishing that David Lerner would continue to provide Mr. Knight’s programs investor funds. Mr. Knight was also subject of an SEC action that resulted in sanctions related to deceptive disclosures concerning performance and compensation. In re Apple REIT Six, Inc., et al, Release No. 9548 (Feb. 12, 2014).
Energy 11 does not have an experienced management team in the oil & gas industry as the offering freely admits in the company’s prospectus stating : “Neither our chief executive officer nor our chief financial officer has any prior experience in investing in oil and gas properties.”
In addition, since Energy 11 has no experience in the oil & gas industry and no actual equipment, the company hired Whiting Petroleum Corporation to operate the partnership’s operations. However, Whiting Petroleum entered bankruptcy in early 2020 and its stock lost over 99% of its value raising issues as to the ability of the company to manage Energy 11’s operations. As the prospectus discloses: “We will have limited control over the activities on properties we do not operate.”
Claimant alleged that David Lerner has a history of preying upon investors in low quality investment offerings and by misrepresenting investor information on customer suitability forms. David Lerner was recently sanctioned by the State of New Jersey for the exact misconduct complained by Claimant – that David Lerner agents placed hundreds of the state’s residents into high risk investments that they were not qualified for under the terms of the offering. David Lerner and the investments they sell, have been sanctioned by numerous regulatory authorities and subject to scores of litigation.
Mr. Merl recommended that Claimant invest virtually all of her investable assets in the Energy 11 oil and gas program. In order to ensure that Energy 11 accepted the investment, Mr. Merl misrepresented Claimant’s net worth on investment’s subscription documents. Energy 11’s offering terms required that New Jersey residents invest no more than 10% of their net worth in the investment. The complaint alleges that Mr. Merl stated Claimant’s net worth at an astonishing and false $11,550,000 when David Lerner’s own records state that the widow only had a net worth of only $2 million. Further, David Lerner failed to conduct the necessary due diligence before selling the Energy 11 investment to Claimant and otherwise omitted and misrepresented the investment.
The claim alleges that the investment Respondent recommended in Energy 11 caused Claimant significant losses and overconcentrated Claimant in a single high risk security.
The investment lawyers at Gana Weinstein LLP represent investors who have suffered investment losses due to allegations of wrongdoing. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover. Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation.