Oil and Gas Investment Losses
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 may have potential legal remedies due to unsuitable recommendations by their broker to invest in this speculative and volatile area.
Each of these types of investments contain unique risks correlated to the prices of oil and gas. One of the hottest Wall Street products in recent years have been MLPs, a sector that grew to include $600 billion in assets at its peak before collapsing to about $300 billion now. One reason that MLPs are so attractive to Wall Street firms is because MLPs are required to pay huge bank fees in order to continue to grow. In 2013 banks like Citigroup, Barclays, Wells Fargo, and Raymond James earned fees of $890.3 million from MLP issuance. Bloomberg quoted an analyst stating that “MLPs are Wall Street’s dream,” because “[t]hey’re fee machines.” Unsurprisingly Wall Street had a perverse interest to pump of MLPs and according to Bloomberg in May 2014 analysts predicted that 93 of the 114 MLPs in existence will rise in value in the next year and all but five MLPs were recommended by the majority of the analysts who covered them. Wall Street could not have been more wrong and investors have lost an astonishing $8 of every $10 they had invested since 2014. Wall Street banks such as made an estimated $1.1 billion in fees for selling these products to investors.
Another oil and gas product that has been hyped by brokerage firms are oil and gas private placements. An analysis by Reuters shows how many of companies issuing oil and gas private placement projects are run like profitable casinos rather than investments. Reuters found that slightly more than half of 43 private placements Atlas Energy issued over the past three decades investors lost money or just broke even. While investors lost in more than half of the deals in 29 or 67% of those deals, Atlas actually out performed their own investors. Given the fact that sometimes only 65-70% of investor’s money is actually used for investment purposes the deals and investors are not compensated for that risk there is little rationale to invest in these products.
Finally, ETF and ETNs including leveraged ETNs provide investors with the ability to gain exposure to MLPs and oil and gas related investments. However, many investors do not understand how these products work and can perform under stressed market environments. For instance, recently the ETRACS 2x Monthly Leveraged Long Alerian MLP Infrastructure ETN (MLPL) which reached a high of around $73 in July 2014 only to fall to about $12.6. According to a press release by UBS the funds will be mandatorily redeemed due to the triggering of an acceleration event. Thus a $113 million fund is being liquidated when the notes were supposed to expire by the earliest in 2040. Now inevestors are being forced to suffer losses while the oil and gas markets are under stress and assets will be sold at firesale prices
Brokers that have recommended oil and gas investments to clients may have made unsuitable recommendations based upon the yields of these investments rather than the risk to principal. 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.