David Lerner Broker, Michael Norton, Subject of FINRA Arbitration Related to Energy 11 Losses
According to publicly available information, Michael J. Norton (Norton, CRD# 2617985), a stockbroker affiliated with David Lerner Associates, Inc. (David Lerner), has disclosed a pending customer dispute related to an investment in the oil and gas sector through one of David Lerner’s proprietary investment vehicles. Mr. Norton is a longtime securities industry professional with 24 years of experience as a stockbroker. Since 1998, he has been employed by Syosset, NY-based David Lerner.
With respect to the pending customer dispute—in which Norton was not individually named as a party—the arbitration was filed by one of Mr. Norton’s customers around November 2020. The arbitration alleges damages of $50,000 and concerns allegations of unsuitability, as well as misrepresentation and omission, in connection with an investment in Energy 11, L.P. (Energy 11), one of several energy investment products offered by David Lerner.
Formed in 2013 as a Delaware limited partnership, Energy 11 is focused on acquiring and developing “producing and non-producing oil and natural gas properties onshore in the United States...” As of March 31, 2020, Energy 11—which operates in proximity to the Bakken Shale in North Dakota—owned an approximate 25% non-operated working interest in 235 producing wells, an estimated approximate 20% non-operated working interest in 26 wells in various stages of the drilling and completion process, as well as future development sites in the Sanish field located in Mountrail County, North Dakota.
Energy 11 is an extremely risky and complex investment. Unfortunately, in some instances, financial advisors may have recommended an investment in Energy 11 to their customers without adequately explaining its many risk components and complex nature. To begin, Energy 11 is extremely illiquid in nature, as investors cannot readily sell their partnership units on a public market. Further, this investment is costly in nature. In fact, according to publicly available information, David Lerner received a total of 6% in selling commissions for units sold, as well as a marketing expense allowance based on the gross proceeds of total common units sold, in Energy 11. Such high up-front commissions and expenses act as an immediate drag on investment performance.
Moreover, an investment in Energy 11 is tied directly to the risky and capital-intensive subsector of the oil and gas market which involves costly exploration and production (E&P) activity. When a financial advisor recommends an oil and gas investment to a client, the advisor should first seek to inform his or her client of the risks associated with investing in the volatile oil and gas market. In addition, the financial advisor has a legal duty to perform a suitability analysis to determine if the investment is suitable in light of the customer’s profile and stated objectives. In instances where a financial advisor fails to disclose the risks associated with an investment (or investment strategy), or if an investor’s account becomes over-concentrated in oil and gas investments, then the advisor and his or her firm may well be held liable for losses sustained.
The attorneys at Giarrusso Law Group LLC possess considerable experience in successfully representing aggrieved investors in various complex and illiquid oil and gas investments. Often, investors may pursue claims to recover losses through securities arbitration before FINRA. Investors who wish to discuss a possible claim related to an oil or gas investment may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, no-obligation consultation.