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Home > Blog > Monthly Archives: April 2020

Monthly Archives: April 2020

FINRA Proposes Enhancements to Protect Senior Investors from Financial Harm

On April 16, 2020, the Financial Industry Regulatory Authority (FINRA) issued an alert which stated that “there is no higher priority for FINRA than protecting senior investors from financial exploitation. Thus, every year we bring dozens of enforcement actions against brokers who harm senior investors, either through fraud schemes, conversion, churning of accounts, or otherwise.”

In this alert, FINRA highlighted “one pattern we have seen with increasing frequency in which certain brokers have exploited their senior customers” – brokers who are “appointed beneficiaries, executors or trustees, or holding a similar position for customers.”

Being named a customer’s beneficiary, executor or trustee, or holding a power of attorney or a similar position for or on behalf of a customer may present significant conflicts of interest for investment professionals. Conflicts of interest can take many forms and can result in registered persons taking advantage of being named beneficiaries or holding positions of trust for personal monetary gain. Problematic arrangements may not become known to the member firm or customer’s beneficiaries or surviving family members for years. Senior investors who are isolated or suffering from cognitive decline are particularly vulnerable to harm.

As noted by FINRA, “at best these arrangements present potential conflicts of interest, at worst they provide the opportunity for massive financial exploitation of (often) vulnerable senior customers.”

To counter this increasing concern, FINRA has proposed a new rule limiting the circumstances under which a broker may be named a customer’s beneficiary, executor, or trustee or hold a power of attorney for a customer. If approved, this rule will create a new national standard to better protect investors.

If you are a senior investor who has any concerns about your investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

HAVE YOU LOST MONEY IN ENERGY INVESTMENTS?

If you have suffered investment losses in oil and gas bonds and stocks or other energy investments, you may be able to recover compensation.

For many years, brokers and investment advisors sold energy company bonds and other energy-related investments as safe, secure, and income generating investments for investors. In particular, brokers and investment advisors sold oil and gas bonds and stocks, master limited partnerships (MLPs) and exchange traded funds (ETFs) that invested in MLPs to seniors interested in generating income during their retirement years.

However, over the past few months as the price of oil has dropped, many investors have experienced substantial losses.

At Maddox Hargett & Caruso, P.C. , we represent individual and institutional investors who have suffered losses in oil, gas, and other energy bonds and stocks. If your broker or advisor is at fault, we can win appropriate compensation. The following are just some of the more common examples of issues leading to compensable energy investment losses:

Fraud and Investment Scams

Many oil and gas bonds and stocks and other energy investments are heavily marketed to individuals – and often to senior citizens. In many cases, brokers and advisors have promised significant yields with little risk based upon the stability of the energy companies backing the bonds. In many cases, these promises are either fraudulent or part of an outright investment scam.

However, recent events have shown that the energy sector is not immune to market volatility, and many investors in energy bonds have suffered significant losses. Yet, fraudsters, scam artists, and self-interested brokers continue to peddle these bonds as “low-risk, high-reward” investments.

Negligence

In some cases, brokers and advisors have led investors off course not intentionally, but as a result of negligence. The energy market is extraordinarily complex, and brokers and advisors who recommend bonds and other securities must make sure that they are knowledgeable about the risks involved. If you suffered losses in energy bonds or other energy investments, your broker or advisor may be to blame – and may be liable for the damage to your portfolio.

Over-Concentration

In some instances, brokers and investment advisors have recommended that individual investors – many of them retirees who rely on modest investment income to pay their bills – pour nearly their entire investment portfolios into oil and gas bonds and other energy-sector investments. This is a risky, even reckless, practice that puts investors at the mercy of the energy market.

Unsuitability

Even if an investor’s portfolio is not over-concentrated in the energy market, energy bonds still may not be suitable investments based upon the investor’s financial needs and investment goals. Brokers and investment advisors are required to recommend “suitable” investments based on these factors, as well as each individual investor’s personal tolerance for risk. With the volatility of the energy market, oil, gas, and other energy investments will not be suitable for many investors’ short- or long-term investment strategies.

Have You Lost Money in Energy Bonds?

With the volatility of the energy market – and the oil sector, in particular – many investors are continuing to suffer substantial losses in energy and oil-related bonds and stocks, MLPs and other investments. If you have suffered unexpected and unexplained losses in energy investments, it is important to seek legal help right away. At Maddox Hargett & Caruso, P.C., we offer free consultations to all harmed investors, and we do not charge any fees unless we win your case.

To find out if you may be entitled to recover your investment losses, please contact Mark Maddox for your free consultation. Call 317-598-2040 to discuss your situation today.

Midstream Energy Master Limited Partnerships are Approaching “Junk” Status

On April 3, 2020, in a research note to clients (“Navigating Credit Risks in the Midstream Sector”), Bank America – Merrill Lynch noted that the rating agency Standard & Poors believes that “over 40 producers” in the midstream energy sector “will be rated in the CCC category” and that it “sees potential for bankruptcies or defaults near-term” in the sector.

S&P expressed a concern “about commodity prices, storage limitations and shut-ins. S&P believes the solvency of producer customers in assessing midstream ratings is a relevant question given the potential for Chapter 11 or even Chapter 7 cases.”

As we have previously noted, the recent decline in valuations in the midstream and master limited partnership (MLP) energy sectors has been more rapid than during the 2008 financial crisis and the 2015-2016 energy market stress.

In fact, over a 45-day period since mid-February 2020, which is a typical market value exposure period for CEFs, the Alerian MLP index has decreased 69%, almost double its 37% decline during the worst 45-day period in 2008 and more than double the 30% decline in 2015-2016.

Master Limited Partnerships (MLPs) are pass-through entities structured as publicly traded partnerships (PTPs). MLPs pay no corporate-level taxes and taxes are instead paid at the individual unitholder level. In addition to avoiding double taxation, a portion of the cash distribution paid by an MLP is typically tax deferred at 50-100%. MLPs usually have a limited partner (LP) and general partner (GP). MLPs pay out the bulk of operating cash flows as distributions to LP and GP unitholders. Energy MLPs predominantly operate in the midstream energy sector including: transportation (pipelines), storage (terminals), gathering, processing, and other methods of handling natural gas, crude oil, and refined products. There are also other types of Energy MLPs engaged in oil and gas exploration and production (E&P), oilfield services and refining.

A number of energy MLPs have already been forced to deliver their balance sheets and have started to slash their amount of distributions. Just recently, for example, Plains All American Pipeline LP (NYSE-PAA) cut their May distribution to $0.18 from the $0.36 that it paid in February, Enable Midstream Partners LP (NYSE-ENBL) cut their May distribution to $0.16525 from the $0.3305 that it paid in February and DCP Midstream LP (NYSE-DCP) cut its May distribution to $0.39 from the $0.78 that it paid in February.

If you are an investor who has any concerns about your MLP investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Are Energy Master Limited Partnerships (MLPs) Running on Empty?

On March 17, 2020, Fitch Ratings downgraded senior notes to ‘A’ from ‘AAA’ and preferred shares to ‘BBB’ from ‘AA or ‘A’ of 10 midstream energy closed-end funds (CEFs) following severe declines in portfolio values that eroded the funds’ asset coverage ratios. Fitch also placed all securities on Rating Watch Negative reflecting the potential for additional unrealized losses as a result of asset price declines and/or realized losses in the event the funds are required to sell further assets in order to deleverage.

The recent decline in valuations in the midstream and master limited partnership (MLP) energy sectors has been more rapid than during the 2008 financial crisis and the 2015-2016 energy market stress.

In fact, over a 45-day period since mid-February 2020, which is a typical market value exposure period for CEFs, the Alerian MLP index has decreased 69%, almost double its 37% decline during the worst 45-day period in 2008 and more than double the 30% decline in 2015-2016

Master Limited Partnerships are pass-through entities structured as publicly traded partnerships (PTPs). MLPs pay no corporate-level taxes and taxes are instead paid at the individual unitholder level. In addition to avoiding double taxation, a portion of the cash distribution paid by an MLP is typically tax deferred at 50-100%. MLPs usually have a limited partner (LP) and general partner (GP). MLPs pay out the bulk of operating cash flows as distributions to LP and GP unitholders. Energy MLPs predominantly operate in the midstream energy sector including: transportation (pipelines), storage (terminals), gathering, processing, and other methods of handling natural gas, crude oil, and refined products. There are also other types of Energy MLPs engaged in oil and gas exploration and production (E&P), oilfield services and refining.

As most MLPs are focused on a single industry or industry segment, investors have concentrated exposure to the volatility of that industry or segment. Changes in the price of commodities in that industry could impact the amount of income that an MLP generates or the ability of the MLP to maintain or expand its operations. Because most MLPs are currently in the energy sector, particularly in the pipeline or energy storage industries, MLPs can be acutely sensitive to shifts in oil and gas prices as have been recently experienced.

If you are an investor who has any concerns about your MLP investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).


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