David Lerner Stockbroker, Lawrence Merl, Subject of Pending Customer Dispute Related to Energy 11
According to publicly available information, registered representative Lawrence Merl (CRD# 2443190) was recently named in a securities arbitration proceeding before the Financial Industry Regulatory Authority (FINRA). Specifically, one of Mr. Merl’s customers has alleged an unsuitable investment recommendation in connection with a certain proprietary oil and gas investment offered by David Lerner Associates, Inc. (David Lerner, or DLA), namely Energy 11, L.P. (Energy 11).
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.
Since the onset of the COVID-19 pandemic, Energy 11 has sustained massive losses. Most recently, in January 2021, Energy 11 filed a Form 8-K with the SEC, disclosing an estimated value of $7.23 per common unit, as of December 31, 2020. In light of this most recent filing as to valuation, investors who acquired their Energy 11 units through the offering at $20 per common unit have likely sustained considerable losses of at least 65% on initial capital invested, exclusive of any distributions received to date. Energy 11—through Syosset, NY-based brokerage firm David Lerner—first began offering investors its common units in January 2015, subsequently completing the offering around April 2017, raising gross proceeds of $374.2 million.
Of concern, Energy 11 is controlled by Mr. Glade M. Knight, who possesses no substantive background in the oil and gas industry. In fact, according to Energy 11’s prospectus: “Neither our chief executive officer nor our chief financial officer has any prior experience in investing in oil and gas properties.” Furthermore, Energy 11 owns no equipment for oil drilling and exploration. Rather, the Partnership entered into an arrangement with Whiting Petroleum Corp. (Whiting) to operate the Partnership’s operations. In early 2020, financially distressed Whiting entered into bankruptcy, calling into question its ability to effectively operate equipment for Energy 11 moving forward.
When a financial advisor like Lawrence Merl 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. In many instances, 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, confidential consultation.