Purshe Kaplan Sterling

Larry M. Phillips of The Phillips Group, Sanctioned For Overcharging Customers

July 8, 2015 | by Staff Attorney

On April 27, 2015, the Financial Industry Regulatory Authority (FINRA) published a Letter of Acceptance, Waiver, and Consent (AWC), whereby Larry M. Phillips of The Phillips Group, in Woodland Hills, California, was sanctioned for his misconduct related to Phillips’ unlawful overcharging of several of his customers.

In December 2009, Phillips became registered as a general securities representative through Purshe Kaplan Sterling Investments (“PKS”). From January 2010 through August 2010, while registered with PKS, Phillips overcharged several customers by charging both markups and investment advisory fees. First, Phillips purchased securities, including Steepener CDs, Floating Rate Notes, Principal Protected Notes, and Municipal Securities for several of his investment advisory clients. Next, Phillips allocated the marked-up products to those same clients’ investment advisory accounts. In doing so, Phillips charged advisory fees on the very same securities for which he had already charged a markup. FINRA found that by assessing both markups and investment advisory fees, Phillips’ was in violation of FINRA Rule 2010 and MSRB G-17.

As a consequence of Phillips’ misconduct, FINRA fined Phillips $7,500, suspended him from the securities industry for 45 days, and ordered him to pay over $3,000 in restitution to the customers that he took advantage of. This is not the first time that Phillips has been sanctioned. For example, in April 2005, Phillips executed an AWC with NASD, where he agreed to a ten-day suspension and $20,000 fine for failing to adequately disclose material facts regarding investment products and strategies in written communications that he disseminated. Then again, in October 2006, Phillips was sanctioned—this time by the State of Illinois based on these same improper communications discovered by the NASD. Illinois sanctioned Phillips by prohibiting from serving as a principal in Illinois for a period of two years in addition to requiring him to pay a $1,000 fine.

Atlas Energy Oil and Gas Investments: Risks Investors Should Know Part II

December 17, 2014 | by Staff Attorney

This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.

In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.

In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.

Atlas Energy Oil and Gas Investments: A Risky Proposition Part I

December 16, 2014 | by Staff Attorney

As recently reported in Reuters, Atlas Energy LP has marketed itself to investors as a way to get into the U.S. energy boom. By contributing at least $25,000 in a private placement partnership that will drill for oil and gas in states such as Texas, Ohio, Oklahoma and Pennsylvania and share in revenues generated from the wells. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal sounds good when pitched: participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of fossil fuels into potentially viable prospects and to boot Atlas will invest up to $145 million of its own capital alongside investors. Through this method and similar deals, oil and gas projects have issued nearly 4,000 private placements since 2008 seeking to raise as much as $122 billion.

But before you take the plunge a review of the Atlas’s offering memorandum reveals some red flags and given Atlas’ past failure rate investors should think twice. First, up to $45 million of the money raised will be paid to Atlas affiliate Anthem Securities that will then be turned over to as commissions to broker-dealers who pitch the deal to investors. Up to $39 million more will be used to buy drilling leases from another affiliate. Think investors will get a fair price on the leases when Atlas controls both sides of the deal? More conflicts ahead as Atlas affiliated suppliers may also get up to $53 million for buying drilling and transport equipment. Next, an additional $8 million of Atlas’s investment is a 15 percent markup on estimated equipment costs. Finally, Atlas will pay itself nearly $52 million in various other fees and markups.

In sum, at least 40% of Atlas’s $145 million investment alongside mom and pop goes right back to the company. In addition, Atlas’ profits don’t stop there, when the venture starts generating revenue Atlas is entitled to 33% before accounting for those payments and markups. In the end, not much of a risk at all for Atlas.