Investors have recently filed numerous claims with The Financial Industry Regulatory Authority (FINRA) against brokerage firm David Lerner Associates alleging unsuitable concentration in proprietary products invested in non-traded oil & gas investments.
The investigation focuses on questionable sales practices and supervisory responsibilities regarding risk-averse customers, particularly retirees who were seeking safe, income-producing investments for their retirement portfolios.
Brokers and their broker-dealers have a fiduciary duty to properly advise clients on suitable investments that align with their risk tolerance, investment objectives, and financial situation.
This is especially concerning given the allegations related to the marketing of Apple Real Estate Investment Trusts and claims about suitability and performance presented to conservative investors who suffered significant losses due to efforts to develop oil assets in volatile energy markets.
Energy 11 & Energy 12: Investments Under Scrutiny
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Thousands of investors were sold Energy 11 LP and Energy Resources 12 LP, along with the America Energy Fund (Spirit of America Fund, NASDAQ: SOAEX) – all investments heavily targeting the energy sector with significant concentration risks. We are currently representing numerous customers in FINRA arbitration claims who allege they were not properly informed about the risks associated with these investments.
David Lerner Associates reportedly received substantial commissions and contingent incentive fees for selling these investments, amounting to up to 6% in selling commissions and an additional 4% of the gross proceeds from units sold. This commission structure raises serious concerns about potential conflicts of interest in their investment recommendations and whether client interests were prioritized over the firm’s financial gain.
Understanding Energy 11 & Energy 12 Investments in Detail
Energy 11 LP and Energy 12 LP are non-public limited partnerships sold as private placements specifically focused on the energy sector. These partnerships were formed to acquire and develop oil and natural gas properties in the United States. These complex investment vehicles are typically designed for sophisticated, high-net-worth investors with substantial investment experience and the financial capacity to absorb potential losses.
However, evidence suggests they have been aggressively marketed to regular retail customers who may not fully understand the associated risks, illiquidity concerns, and complex fee structures.
These partnerships primarily invest in non-operated working interests in established oil fields throughout the United States. Specifically, Energy 11 and Energy 12 hold stakes in numerous producing wells across multiple basins, including the prolific Bakken shale formation in North Dakota.
These investments focus on enhancing the value of these interests through operational improvements and strategic development. The investments have a strong onshore focus, targeting regions known for their rich oil and natural gas deposits.
The Greater Williston Basin region, which includes the Sanish Field and Three Forks Shale (a close geologic cousin to the Bakken), represents one of the largest oil fields in North America and has been a primary focus for Energy 11 and Energy 12. These areas have seen significant industry activity due to their potential for generating attractive returns for limited partners.
However, the performance of these investments is directly tied to energy commodity prices, which have experienced significant volatility in recent years. This volatility can substantially impact the value and income-generating potential of these investments, creating risk levels potentially unsuitable for conservative investors seeking preservation of capital and stable income.
Future Development Locations and Expansion Strategy
Energy 11 and Energy 12 marketing materials reportedly highlighted future development locations throughout prime oil producing regions as a key selling point to investors. These materials suggested that the partnerships would acquire additional interests in producing wells and expand operations to capitalize on emerging opportunities in energy-rich territories. The partnerships raised over $350 million to invest in these future development locations, showcasing their capacity to attract significant investor funds.
The partnerships emphasized their strategic focus on the Bakken assets and other domestic oil reserves, portraying these investments as opportunities for generating attractive returns through calculated expansion into proven energy resources. However, many investors allege they were not adequately informed about the speculative nature of these development plans or the various market factors that could impact their success.
Broader Concerns About David Lerner Associates’ Investment Products
The controversy extends beyond these energy sector investments to other complex products like collateralized mortgage obligations and municipal bonds, highlighting the range of potentially unsuitable investments allegedly being sold to inappropriate investor profiles. This pattern suggests potential systemic issues with the firm’s sales practices and due diligence procedures.
Both brokers and their broker-dealers have a regulatory responsibility to ensure investments are both understandable to clients and suitable for their specific financial situation, investment objectives, and risk tolerance. FINRA regulations specifically require that brokers have reasonable grounds for believing a recommendation is suitable based on a client’s investment profile before recommending any security or investment strategy.
Additionally, David Lerner Associates has offered municipal bonds that have come under regulatory scrutiny for allegations of unfair pricing practices and omissions. These investments were subject to regulatory scrutiny, further highlighting the importance of thorough due diligence when dealing with financial professionals and investment recommendations.
Legal Options for Energy 11 & Energy 12 Investors Seeking Recovery
FINRA arbitration typically proceeds faster and with less complexity than traditional lawsuits, offering investors a more efficient path to potential recovery. The arbitration process allows investors to file claims to recover losses against financial advisors and broker-dealers who may have recommended unsuitable investments or failed to adequately disclose material risks.
For investors who purchased Energy 11, Energy 12, or other David Lerner Associates products based on recommendations they believe were unsuitable or misrepresented, there may be grounds for seeking compensation through FINRA arbitration. Common allegations in these cases include:
- Unsuitability: Recommendations that didn’t align with the investor’s risk tolerance, financial objectives, or circumstances
- Misrepresentation: Failure to accurately disclose material risks, fees, or potential conflicts of interest
- Overconcentration: Excessive concentration of a portfolio in a single sector or investment type
- Breach of fiduciary duty: Failure to act in the client’s best interest when making investment recommendations
- Negligence: Failure to conduct adequate due diligence on recommended investments
If you own Energy 11, Energy 12, or other David Lerner Associates products in your portfolio and have experienced unexpected losses or discovered risks that weren’t adequately disclosed, you may be eligible for compensation through FINRA arbitration. It’s important to act promptly, as there are time limitations on when you can file a claim.
Understanding the Risks of Private Placements in the Energy Sector
Private placements like Energy 11 and Energy 12 typically come with several inherent risks that may not be suitable for all investors:
- Limited Liquidity: These investments typically cannot be easily sold or liquidated, potentially locking up capital for extended periods
- Complexity: The structure of these investments can be difficult for non-professional investors to fully understand
- Market Exposure: Direct exposure to volatile energy markets and commodity prices
- Operational Risks: Risks associated with the actual operation and management of oil assets
- Regulatory Changes: Potential impacts from changing regulations in the energy sector
- High Fees: Multiple layers of fees that can significantly impact returns for limited partners
- Value Drop: The value of these investments can drop significantly, as seen with Energy 11, which fell more than 50% from its initial offering price and continued to drop with further declines in oil prices during the COVID-19 pandemic.
Conservative investors, particularly retirees relying on their investments for income, may find these risk factors incompatible with their financial needs and objectives. Financial advisors have an obligation to fully explain these risks and ensure investments align with each client’s specific situation.
How the Distribution of Gross Proceeds Impacts Investors
Energy 11 and Energy 12 offering documents outlined how gross proceeds from the sale of units would be distributed, with significant portions allocated to various fees before actual development activities could commence. A substantial percentage of proceeds went toward offering and organizational expenses, reducing the amount available for actual investment in oil assets.
The distribution structure of these partnerships was set so that a significant portion of investor capital was directed to David Lerner Associates and other parties through contingent incentive fees and other charges. These fee arrangements created potential conflicts of interest, as the brokerage firm potentially stood to gain regardless of whether the investments ultimately generated attractive returns for investors.
How Haselkorn & Thibaut Can Help Energy 11 & Energy 12 Investors
At Haselkorn & Thibaut, our investment fraud attorneys specialize in representing investors who have suffered losses due to broker misconduct, unsuitable investment recommendations, or inadequate risk disclosures. With extensive experience in FINRA arbitration proceedings, our legal team understands the complexities of these cases and how to effectively advocate for investors seeking to recover their losses.
Our approach includes:
- Comprehensive evaluation of your investment portfolio and recommendations received
- Detailed analysis of all disclosures and communications regarding Energy 11 and Energy 12 investments
- Assessment of suitability based on your specific investment profile and objectives
- Development of a strategic approach to seeking maximum recovery of losses
- Expert representation throughout the FINRA arbitration process
- Clear communication and guidance at every stage of your case
We understand the financial and emotional impact of investment losses, particularly for retirees and those approaching retirement. Our attorneys are committed to fighting for the rights of investors and holding financial professionals accountable for unsuitable recommendations.
For further reading on how to recover your investment losses from David Lerner Associates, click here or contact our firm.
Take Action: Contact Haselkorn & Thibaut Today for a Free Consultation
If you invested in Energy 11, Energy 12, or other David Lerner Associates products and have concerns about suitability or performance, don’t delay in seeking professional legal advice. The statute of limitations may limit your time to file a claim. Significant events, such as the completion of fundraising activities for limited partnerships in October 2019, could impact your investment timeline.
Call our investment fraud attorneys at 1-800-856-3352 today for a comprehensive, no-obligation free consultation to evaluate your potential claim. You can also send a message. Contact us today to discuss your situation.
Why Choose Haselkorn & Thibaut?
National law firm specializing exclusively in investor protection and securities litigation. Over 50 years of combined experience in securities law and FINRA arbitration. Impressive 95% success rate in investment fraud cases recovery, no fee policy – you pay nothing unless we recover money for you
Convenient virtual or in-person consultations to accommodate your preferences. Offices strategically located in Florida, New York, Arizona, Texas, and North Carolina. A dedicated team of attorneys with specialized knowledge of energy sector investments
Proven track record of substantial recoveries for investors nationwide.
Our experienced attorneys understand the complex issues surrounding Energy 11 and Energy 12 investments and have the expertise to effectively represent your interests. We are committed to ensuring that the final product of our services meets the highest standards of quality and reliability. Don’t face these complicated legal matters alone – let our team help you pursue the recovery you deserve.
Disclaimer: Information in this article comes from publicly available sources and may include allegations not yet proven. All posts are believed accurate as of posting time but details may change over time. Content may contain opinions of the author and is not guaranteed for accuracy. This communication is not to be construed as legal advice, and readers should consult with qualified legal counsel for advice specific to their situation.
