Tag Archives: Oklahoma

Oil / Gas Investment and Tax Loss

Oil StockSome Energy, Oil and Gas investments can only legally be sold to a limited section of the investing public.  If you suffered losses we may be able to  help.  Contact us at 303-300-5022 or 1-866-817-0201 (toll-free) for a free consultation.

Oil and gas investors do not have to sit and watch their life savings diminish.  These investors have rights though many are unaware of the recourse they have for such losses.

Many investors have received high pressure sales of oil and gas investments.  Brokers and other investment professionals like to sell these types of investments because they usually pay a very high commission.  These commissions can be 10 to 20 times higher than the commission on your average stock sale.  The high commissions will often cause these individuals to ignore the rules in the sale of such investments. The two rules that are usually ignored are those concerning accreditation and suitability.

Oil and gas limited partnerships can generally only be sold to “accredited” investors.  Such investors are individuals whose liquid net worth, their net worth excluding their home, is in excess of $1 million. The second rule that is commonly violated in the sale of such investments is the suitability rule.  Oil and gas investments are known by investment professionals to generally be very high risk investments.  Investments need to be consistent with the level of risk that an investor is willing or able to take.  For example, a person approaching or in retirement or who cannot otherwise afford to take high levels of risk with their investments could not legally be offered an oil and gas investment.

Likewise, an individual who expresses a desire for conservative or moderate investments would not be a suitable investor. There are many other rules that can potentially be violated in the sale of oil and gas investments.

Problems exist not just with the investment losses, but also with the tax consequence of investing in these companies.  A detailed description is found in the following Link to Forbes.   In short, these investments are partnerships.  When debt is defaulted upon by a partnership, and the lender “writes off” the debt, the write off means that the owners (the investors) are taxed as if they received the amount written off as income.  Considering some limited partnerships defaulted on billions in loans, the tax obligation of investors is substantial.

If you have any questions, please feel free to give us a call.  These rules apply no matter if you invest in individual oil or gas investments or invest through a mutual fund or master limited partnership (MLP).

Common oil and gas investments we see recoverable losses include Linn Energy (“LINE” or “LNCO”) and more information can be found at www.jpedersonlaw.com/blog/linn-energy-losses/, Williams Companies (“WMB”), Penn West Petroleum (“PWE”), BP Prudhoe Bay Royalty Trust (“BPT”), Breitburn Energy Partners, LP (“BBEP”), Hawthorne, SandRidge Energy, Williams Ridgewood Energy, Apco, Atlas Energy, Midstates Petroleum, Peabody Energy, Resolute Energy, XXI Energy, Nobel, Permian Basin, and Breitling Energy.  Some of these losses may be recoverable by class action while others may require individual FINRA arbitration suits.

More information on SandRidge can be found at this link.

Oil Stock IIJeffrey Pederson is an attorney who works with investors to recover losses in FINRA arbitration and has represented investors in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut , Florida, Hawaii, Illinois, Indiana, Massachusetts, Montana, New Jersey, New Mexico, New York, North Carolina, Maryland, Minnesota, Missouri, Montana, North Dakota, Rhode Island, Texas, Utah, and Wyoming, in FINRA arbitration actions against securities brokerage firms for unsuitable investments.  Please call for a confidential and free consultation.

Austin Morton

The Financial Industry Regulatory Authority charged Austin Morton, a former Edward Jones broker located in eastern Oklahoma, with the theft of $36,000 from an 83-year-old man with dementia.  It is alleged that this theft was motivated by outstanding gambling debts of Morton.

Wall Street photo 2Morton is alleged to have taken more than $22,000 that the elderly investor left in Morton’s car after the investor liquidated his retirement account.  The FINRA complaint asserts that in September 2016 the investor was in the car of Morton after having lunch with Morton.

A month later the Edward Jones broker filled out a signed blank check from the customer for another $22,000.  Morton defended the action saying that the transfer of funds to him was a loan and that the investor was a personal friend.  Part of the funds were asserted by the broker to be for medical expenses which are alleged to have never occurred.

The FINRA complaint states, “[I]n 2016 Morton incurred close to $130,000 in losses from Online [gambling site], the primary online horse racing wagering facility with which he placed bets at the time.”  The complaint goes on to say, “[I]n September 2016 alone, the month in which he committed his first act of conversion, Morton made 38 separate deposits into his Online [gambling] account, totaling more than $17,300.”

Finra charged Morton with both conversion of funds and an unrelated charge of engaging in undisclosed outside business activity. These are substantial charges that could result in a bar from the securities industry.

On his FINRA BrokerCheck record, a form of his CRD record, Morton denied his employer’s termination charges stating, “gentleman [the alleged victim] [is] a long time family friend,” and that the investor “was no longer a client,” the broker wrote.

A copy of the complaint can be found at the following link.

SandRidge Energy (SDOC) Losses

 

The Law Offices of Jeffrey Pederson PC is investigating investor losses sustain in SandRidge Energy.  If you have suffered such losses please call 1-866-817-0201 for a free and confidential consultation.

7crude-oil-pumps-power-transmission-elementsSandRidge Energy Inc, an Oklahoma City-based oil and gas exploration and production company, declared bankruptcy on May 16, 2016.

This Chapter 11 bankruptcy ads SandRidge to the waive of energy companies filing for bankruptcy in 2016.

This bankruptcy by SandRidge will likely leave thousands of investors in Sandridge with substantial losses.  While Sandridge was always a highly speculative investment, our investigation reveals that the investment was commonly and inappropriately sold to those seeking or needing a stable, moderate risk investment.  As such, many investors purchased Sandridge as part of a moderate to low risk or retirement planning portfolio.  These people have recourse for their losses.

Such sale of unsuitable investments can be either negligence or fraud.  Speculative investments like SandRidge can pay a higher commission to brokers, giving brokers an inappropriate incentive to place investors in higher risk investments than is suitable.  Brokers can also recklessly put investors in high-risk investments to tout higher returns while failing to notify of the higher risk.  Recourse is generally obtained through the filing for arbitration with FINRA, the regulator overseeing brokers.

Additionally, there is an issue of proper investigation by brokerage firms into the claims of SandRidge as to its reserves.   The Securities and Exchange Commission has filed a $1.2 million claim in SandRidge Energy Inc.’s bankruptcy case relating the company’s firing of a whistle-blower who alleged the company didn’t accurately report its oil and natural gas reserves.

SandRidge, which first disclosed the investigation in securities filings earlier this year, provided more information in a quarterly filing on Monday. The company said it is cooperating with the investigation. The audit committee of the company’s board of directors has hired an independent law firm to look into the former employee’s
allegations.

SandRidge had received a letter from the attorney of a former employee who alleged inaccurate reporting of oil and natural gas reserves figures in its public filings. The company said 85 percent of those reserves were calculated by an independent petroleum engineering firm.

Jeffrey Pederson has successfully handled such suitability cases for a large numbers of investors in FINRA arbitrations and is looking to help SandRidge investors.  Please call.  Representations handled largely on a contingent fee basis where attorney fees are only paid upon the recovery of losses.

LINN Energy (“LINE”) Loss Recovery

If you suffered losses in LINN Energy (LINE or LNCO), including tax obligations, you may be entitled to recovery of those losses.  Please call 1-866-817-0201 for a free consultation with a lawyer about loss recovery.  Most representations handled on a contingency basis where attorney fees are not due unless a recovery is received.

LINN Energy, which changed its name to LINCO, stated on March 16, 2016 that bankruptcy protection through the courts may be unavoidable.  This prediction came true on May 11, 2016 when LINN filed for bankruptcy per Rueters.  This will leave many investors who have invested their life savings in LINN looking to change their retirement plans and their financial outlook. For many of these investors LINN Energy was never a suitable investment, and this fact may give the individuals the right to recover their losses.

While some investors may call it “LINN” and others refer to it as “LINE,” all investors can agree that investors should not be responsible for the losses in LINN Energy to the extent that the investment was procured by fraud or negligence. Brokerages that allow the sale of unsuitable investments are responsible for the ultimate losses sustained by their investors.  Brokers and financial advisors have a duty to only sell suitable investments to investors. To be suitable, the investment must be consistent with the wants and needs of the investor.

LINN Energy is, and has always been, a speculative investment.  Unless you are a speculative investor and could afford to gamble on high risk investments LINN Energy was unsuitable for you. The list of people for whom LINN would be unsuitable and entitled to reimbursement includes, but is not limited to, any one of the following:  conservative to moderate investors; investors reliant upon investments for income; individuals reliant upon their savings; unsophisticated investors; individuals not understanding the risks of limited partnerships; individuals who could not afford to risk the amounts invested in LINN: and individuals who would have difficulty re-earning the funds invested in LINN if the investment were completely lost.

The recommendation to invest in LINN can be the result of either negligence or fraud.  Speculative investments often pay a higher commission and give brokers incentive to recommend investments that are not in the best interest of their investors.  Irrespective, the broker’s or financial advisor’s employer is responsible for losses as the result of unsuitable recommendations.

379335_544495705568117_1587447150_nThe risk surrounding LINN are many and not just from the falling oil market.  The potential tax consequences for its investors if LINN were to restructure some of its debt will also impact the value of the investment. When debt is restructured, debt that is forgiven is, for tax purpose, treated as income. Since LINN is an LLC, the tax liability belongs to the investors holding Linn shares.  This will further increase the losses of those holding LINN shares if they must pay tax on the income of LINN.

LLCs are popular because income is only taxed once, unlike regular corporations where the income of the corporation is taxed and the resulting dividends are also taxed.  While the single taxation is popular because it means less taxation of income when things are good, the downside is that investors are responsible for the tax the LLC cannot pay when things are bad.  That can accelerate the decline of an LLC when industry challenges, such as a decrease in the price of oil, occur.

By some estimates, investors will be responsible for paying approximately $24 per share in tax liability to the IRS even if they no longer hold the shares.  Even though the shares may be worthless.  So say an investor purchase $40,000 worth of the investment when Linn was trading at $40 per share, that individual may have to pay the IRS $24,000 for the tax liability of Linn.

Further, Linn offered investors the opportunity to trade in their shares for shares that protected investors from such liability, but Linn and the brokers selling Linn gave investors very little and we believe insufficient notice to investors concerning the opportunity to make the transition and the severe consequence if the transition was not elected.  The deadline to exchange LINE units expired on August 1, 2016. Forbes estimates that only 35% of the Linn investors successfully made this switch to avoid payment to the IRS.  The other 65% will have to pay for Linn’s mismanagement beyond the extent they invested in Linn.

On August 2, 2016, Linn issued the following statement concerning the exchange period:

“The subsequent offering period for the Exchange Offer expired at 12:00 midnight (New York City time) on Monday, August 1, 2016 [...] a total of 19,954,774 LINN units were validly tendered during the subsequent offering period and an aggregate of 123,909,317 LINN units (including LINN units accepted for exchange during the initial offering period), representing approximately 35% of LINN’s issued and outstanding units, were validly tendered and not validly withdrawn pursuant to the Exchange Offer and have been accepted by LinnCo for exchange. “

This is all in addition to the likely losses that shareholders would feel from that restructuring and oil prices that may not rise above $40 per barrel in the near future. LINN and LINCO investments likely became worthless on May 11, 2016.  On that date, LINN filed for Chapter 11 bankruptcy protection per Rueters.

Please call for more information. The Law Offices of Jeffrey Pederson has represented investors with suitability claims in FINRA arbitrations across the country.  Most representations done on a contingency basis.

For a detailed description on the rise and fall of Linn:  http://www.oilandgas360.com/rise-fall-linn-energy/

For a great article on the mess investors will be facing, along with an estimate of tax liability Linn investors will face:  http://www.forbes.com/sites/christopherhelman/2016/05/19/oil-bankruptcies-continue-linn-energy-reorg-wont-be-pretty/#35f687375edc .

MLP Losses

Oil StockWe are investigating losses sustained by investors in Master Limited Partnerships (“MLP”).  This includes all MLP investments including but not limited to UBS ETRACS, Enbridge Energy Partners,  EV Enterprise Partners, and Eagle Rock Energy Partners.  If you have suffered such losses please call toll-free 1-866-817-0201.

MLPs are sometimes referred to as “SSPs” and other names.  There are limited types of investors to whom such investments could be legally sold.  Selling such high-commissioned investments when they contradict the objectives or needs of an investor, making them “unsuitable” for certain investors, is a form of fraud. In August 2015, the SEC conducted an examination of firms selling MLPs.

Among other things, the SEC regulatory examinations revealed several significant deficiencies in the areas of suitability and supervision with respect to all of the examined firms’ recommendations and sales of MLPs to retail investors. Specifically, all of the examined firms: “Failed to maintain and/or enforce adequate controls relating to determining the suitability of MLP recommendations;” and “Failed to conduct both compliance and supervisory reviews of registered representatives’ (“representatives”) determinations of customer suitability in the MLPs, as required by their internal controls.”

MLPs have been increasingly marketed to retail investors, who have been interested in generating income in the low-yield interest-rate environment that has persisted since the financial crisis.  Additionally, MLPs may offer attractive attributes such as partial or full “principal protection” or exposure to a particular asset class.

MLPs often provide for payments determined by reference to other assets or indices and may be more complex than a simple debt instrument with a stated interest rate.  However, these investments have always been known to carry a high degree of risk. A central aspect of a broker-dealer’s duty of fair dealing is the suitability obligation, which generally requires a broker-dealer to make recommendations that are consistent with the best interests of its customer.  So investments must be of the character and have the level of risk that is consistent with these wants and needs.  This “suitability” obligation is a requirement under the  antifraud provisions of the state and federal securities laws, and also requirement of a brokerage firm’s membership in FINRA.  

FINRA also requires brokerages to supervise their representatives, and the Exchange Act, the federal securities law, permits the SEC to sanction broker-dealers who fail reasonably to supervise, with a view to preventing violations of the state and federal securities laws by a person subject to their supervision.  In addition, FINRA has released guidance to help assess the adequacy of controls with respect to MLPs and complex products that members should include in their supervisory and compliance procedures.

For more information on MLPs containing LINN Energy, also known as LINE, see the following: www.jpedersonlaw.com/blog/linn-energy-losses/

Jeffrey Pederson has represented investors in Alabama, Arizona, Arkansas, California, Colorado, Connecticut , Florida, Hawaii, Massachusetts, Montana, New Jersey, New Mexico, New York, North Carolina, Minnesota, Missouri, North Dakota, Rhode Island, Texas, Utah, and Wyoming, in FINRA arbitration actions against securities brokerage firms for unsuitable investments.  Please call for a confidential and free consultation.