The energy sector presents both compelling opportunities and significant challenges for investors seeking exposure to oil, gas, and renewable energy markets. Energy investments, including limited partnerships focused on developing oil and gas assets in regions like the prolific Bakken Shale formation and Greater Williston Basin in North Dakota, can offer attractive returns but also carry substantial risks. These risks require careful consideration and management.
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.
Call our investment fraud attorneys at 1-888-885-7162 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.
Understanding these factors is essential for making informed investment decisions. This is particularly important for individual investors who may be considering energy-focused limited partnerships or direct participation programs sold exclusively by certain brokerage firms.
Introduction to Energy Insights and Risks
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Energy investments encompass a broad range of securities and investment vehicles. These range from publicly traded energy stocks to more complex structures like limited partnerships and direct participation programs.
The risks associated with these investments became particularly evident in recent regulatory enforcement actions. In 2024, the Financial Industry Regulatory Authority reached a settlement with broker dealer David Lerner Associates Inc. The settlement addressed allegations that the firm’s inadequate supervisory systems failed to prevent unsuitable recommendations of illiquid limited partnerships to thousands of customers. This resulted in over $1 million in restitution payments.
This case highlights how energy investments can be high-risk ventures that may not be suitable for all investors. Retirees typically require more stable, income-focused portfolios and may find these investments particularly inappropriate.
The energy industry operates within a volatile environment characterized by numerous factors that can dramatically impact investment performance. Market volatility and fluctuations in oil and gas prices represent primary concerns for energy investors, particularly those investing in onshore development projects in areas like the Bakken assets and Three Forks Shale formations.
Commodity prices can swing dramatically based on geopolitical events, supply and demand dynamics, regulatory changes, and broader economic conditions. These price movements directly affect the profitability of energy companies and the value of energy-related investments. This includes complex structures like Energy Resources 12, Energy 11, and similar America Energy Fund limited partnerships that focus on acquiring and developing producing wells in North Dakota’s largest oil fields.
Investors considering energy investments must understand both the potential rewards and inherent risks. The David Lerner case involved two limited partnerships that raised approximately $593 million from over 6,000 customers between 2015 and 2019.
Energy 11 LP and Energy Resources 12 LP were non-public limited partnerships sold as private placements, specifically focused on acquiring and developing oil and natural gas properties in the United States. These partnerships were designed to acquire non-operated working interests in established oil fields. They held significant holdings in the prolific Bakken Shale formation in North Dakota, the Greater Williston Basin, and the Three Forks Shale formation.
While these investments were marketed as opportunities for generating attractive returns through strategic development of proven energy resources, they also carried significant risks. These included total illiquidity, no guaranteed distributions, and substantial exposure to volatile energy commodity prices.
The performance issues became evident when Energy 11 fell more than 50% from its initial offering price and continued declining during the COVID-19 pandemic as oil prices collapsed.
The regulatory environment plays a crucial role in investor protection within the energy investment space. The Financial Industry Regulatory Authority (FINRA) serves as a key regulatory body, overseeing the securities industry and working to protect investors from unsuitable investments.
The David Lerner Associates enforcement action demonstrates FINRA’s active oversight role. In this case, FINRA found that representatives allegedly modified customer risk tolerances and liquid net worth figures on investment profiles. This made customers appear eligible for investments that would otherwise have been unsuitable.
The case revealed that over 200 customers received unsuitable recommendations, including more than 120 customers who were 76 years or older. This enforcement action resulted in firm censure, a two-year suspension from selling proprietary illiquid products, and requirements for independent oversight of customer profile reconfirmations.
Energy investments often involve complex fee structures that can significantly impact investor returns. In the case of Energy 11 and Energy Resources 12, David Lerner Associates reportedly received substantial compensation, including up to 6% in selling commissions and an additional 4% contingent incentive fees based on gross proceeds from units sold.
These fee structures meant that a significant portion of investor capital was directed to the brokerage firm and other parties before actual investment in oil assets could commence. The offering documents outlined how gross proceeds would be distributed, with substantial portions allocated to offering and organizational expenses. This reduced the amount available for actual development activities.
Understanding these fee structures is essential. They can substantially reduce the net returns to investors and create potential conflicts of interest, particularly when the brokerage firm stands to gain regardless of whether the investments ultimately generate attractive returns for limited partners.
Managing Energy Investment Risks
Effective risk management begins with comprehensive research and due diligence. The David Lerner Associates case illustrates why investors must thoroughly investigate any potential energy investment. This examination should cover both the specific project or partnership and the track record and regulatory history of the brokerage firm and individual brokers involved.
This research should include reviewing the firm’s compliance with supervisory requirements, examining past performance of similar investments, and understanding the experience and expertise of the management team responsible for the energy projects. Investors should be particularly wary of situations where their investment profiles are modified to make them appear eligible for investments, as this was a key issue identified in the FINRA enforcement action.
Professional guidance proves invaluable when dealing with energy investment decisions. Investors should consider consulting with financial advisors or brokers who possess specific experience and expertise in energy investments. These professionals can provide crucial guidance on investment suitability, help evaluate the risk-return profile of specific opportunities, and make sure that energy investments align with overall portfolio objectives and risk tolerance.
Understanding the specific terms and conditions of energy investments is essential for informed decision-making. Energy investments like Energy 11 and Energy Resources 12 involve non-operated working interests. In these arrangements, investors participate in the economic results of oil and gas projects but have no operational control over the development and operation of the assets.
These complex investment vehicles were designed for sophisticated, high-net-worth investors with substantial investment experience and the financial capacity to absorb potential losses. However, evidence suggests they were aggressively marketed to regular retail customers, including conservative investors and retirees seeking safe, income-producing investments for their retirement portfolios.
The investments carried several inherent risks that may not be suitable for all investors: limited liquidity that can lock up capital for extended periods, direct exposure to volatile energy markets and commodity prices, operational risks associated with oil asset management, potential regulatory changes in the energy sector, and multiple layers of fees that can significantly impact returns.
These characteristics proved particularly problematic when Energy 11’s value dropped significantly. This demonstrated the reality that such investments may never recover their initial value and are subject to substantial market volatility.
A critical principle in energy investment evaluation involves maintaining realistic expectations about risk and return relationships. Investors should be particularly cautious of any investment opportunities that promise high returns with minimal risk, as such claims often indicate unsuitable or potentially fraudulent offerings.
The marketing of Energy 11 and Energy Resources 12 reportedly highlighted future development locations throughout prime oil producing regions as key selling points. The materials suggested that the partnerships would acquire additional interests in producing wells and expand operations to capitalize on emerging opportunities. However, many investors alleged they were not adequately informed about the speculative nature of these development plans or the various market factors that could impact their success.
Legitimate energy investments typically involve substantial risks that correspond to their potential for attractive returns. Rather than seeking unrealistic risk-return profiles, investors should focus on building diversified investment portfolios that can help manage overall risk while still providing opportunities for growth.
The complexity of energy investments makes professional consultation particularly valuable. A free consultation with a qualified securities attorney or experienced financial advisor can help investors understand their options, evaluate specific investment opportunities, and make informed investment decisions about energy partnerships and related security offerings.
For investors who purchased Energy 11, Energy Resources 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 or financial objectives), misrepresentation (failure to accurately disclose material risks or conflicts of interest), overconcentration (excessive portfolio concentration in energy sector investments), breach of fiduciary duty, and negligence in conducting adequate due diligence.
FINRA arbitration typically proceeds faster and with less complexity than traditional lawsuits, offering investors a more efficient path to potential recovery. However, there are time limitations on when claims can be filed. This makes it important to seek legal counsel promptly if concerns arise about the appropriateness of energy investment recommendations from any brokerage firm in the securities industry.
Legal Options and Professional Assistance
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 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. We provide detailed analysis of all disclosures and communications regarding Energy 11 and Energy Resources 12 investments. Our team assesses suitability based on your specific investment profile and objectives. We develop strategic approaches to seeking maximum recovery of losses and provide expert representation throughout the FINRA arbitration process. We maintain 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.
If you invested in Energy 11, Energy Resources 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 1-888-885-7162 today for a comprehensive, no-obligation free consultation to evaluate your potential claim. You can also send a message through our website to discuss your situation.
Why Choose Haselkorn & Thibaut?
Haselkorn & Thibaut is a national law firm specializing exclusively in investor protection and securities litigation. We bring over 50 years of combined experience in securities law and FINRA arbitration. Our firm maintains an impressive 95% success rate in investment fraud case recovery, with a no-fee policy – you pay nothing unless we recover money for you.
We offer convenient virtual or in-person consultations to accommodate your preferences. Our offices are strategically located in Florida, New York, Arizona, Texas, and North Carolina. We maintain a dedicated team of attorneys with specialized knowledge of energy sector investments and a proven track record of substantial recoveries for investors nationwide.
Our experienced attorneys understand the complex issues surrounding Energy 11 and Energy Resources 12 investments. We have the expertise to effectively represent your interests. We are committed to making sure that our services meet 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.
Conclusion
Energy investments can play a role in a well-diversified investment portfolio, but they require careful consideration, thorough research, and appropriate risk management. The inherent volatility of energy markets, combined with the complexity of many energy investment structures focused on areas like the prolific Bakken Shale formation, makes professional guidance and comprehensive due diligence essential.
Investors should approach energy investments with realistic expectations, understanding both the potential for generating attractive returns and the significant risks involved. This is particularly important when investing in limited partnerships that acquire interests in future development locations or non-operated working interests.
By maintaining a disciplined approach to research, seeking qualified professional advice, and making sure that energy investments align with overall financial objectives and risk tolerance, investors can make more informed decisions about whether and how to include energy investments in their portfolios. Those considering partnerships like Energy Resources or similar offerings should particularly scrutinize the track record of the broker and firm, understand all fee structures including contingent incentive fees, and carefully evaluate whether such investments are appropriate given their individual circumstances and investment goals.
If you have concerns about energy investments or believe you may have received unsuitable investment advice, contact Haselkorn & Thibaut today at 1-888-885-7162 for your free consultation.
