Securities Lawyers Blog
The investment attorneys with Gana Weinstein LLP continue to report on investor related losses in oil and gas and commodities related investments. Investors may have potential legal remedies due to unsuitable recommendations by their broker to invest in this speculative and volatile area.
Among the MLPs that have suffered significant declines and now is in jeopardy of bankruptcy is Linn Energy (LINE) and LinnCo (LNCO). Both stocks have plummeted in value by about 98% in value over the last year. According to the company’s website, LinnCo is a limited liability company created to enhance LINN Energy LLC ability to raise additional equity capital to execute a growth strategy. While LinnCo’s initial purpose was to own units in its affiliate in connection with the acquisition of Berry Petroleum Company, LinnCo allowed the acquisition and subsequent transfer of assets to Linn Energy. Linn Energy is a top-20 U.S. independent oil and natural gas company and owns approximately 7.3 Tcfe(2) of proved reserves in the Rockies, California, Hugoton Basin, Mid- Continent, Permian Basin, east Texas and north Louisiana, Michigan, Illinois and South Texas.
Now according to analysts, Linn Energy and LinnCo announced a plan to “explore strategic alternatives related to its capital structure.” Simply put, it appears that Linn Energy is out of money and has drawn down the last of its credit facility with only $919 million left out of $3.6 billion line for general corporate purposes.
As a background, The MLP sector had totaled $600 billion in assets at its peak before collapsing to about $300 billion now. According to the Associated Press, investors have lost an astonishing $8 of every $10 they had invested since 2014. 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.
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.
Brokers that have recommended MLPs to investors may have made unsuitable recommendations based upon the yields of these investments rather than the risk to principal. Over the past year MLPs have been hammered due to weaknesses in oil and gas and commodities markets.
Financial advisors must ensure that the oil and gas and commodities related investments being recommended to their client is appropriate for the investor and conduct due diligence on the company before making the recommendation. Unfortunately, sometimes adivsors fail to conduct sufficient research or 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.
Our firm represents securities investors in 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 (MLPs), leveraged ETFs, mutual funds, and individual stocks. 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.