Investors in Certain David Lerner-Sponsored Oil and Gas Limited Partnerships Could Recover Losses
Investors in certain proprietary oil and gas limited partnerships offered by David Lerner Associates, Inc. (David Lerner) may be able to recover their investment losses, if the recommendation to invest by a financial advisor lacked a reasonable basis, or if the investor was otherwise misled into making the investment. Investors in either Energy 11, L.P. (Energy 11), or Energy Resources 12, L.P. (ER12) may be able to recover their investment losses through securities arbitration before FINRA, or in some instances, through litigation.
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.
Formed in 2016 as a Delaware limited partnership, ER12 is also focused on acquiring and developing “producing and non-producing oil and gas properties with development potential by third-party operators on-shore in the United States.” As of March 31, 2020, ER12 owned an approximate 5.7% non-operated working interest in 347 producing wells, an estimated 1.2% non-operated working interest in 21 wells in various stages of the drilling and completion process, as well as possible future development sites in various locations in proximity to the Bakken shale formation.
Structured as limited partnerships, Energy 11 and ER12 carry significant risk and complexity. Unfortunately, in some instances, financial advisors may have recommended these investments to their customers without adequately explaining their many risk components and complex nature. To begin, both Energy 11 and ER12 are illiquid in nature, as investors in either of these David Lerner-sponsored energy investments cannot readily sell their partnership units on a public market. Further, these investments are 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 both Energy 11 and ER12. Such high up-front commissions and expenses act as an immediate drag on investment performance.
Moreover, these energy limited partnerships are directly exposed 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 the 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 overconcentrated 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 are invited to contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost and confidential consultation.