Investor Lawyers Blog
Investors in certain oil and gas limited partnerships offered and underwritten by David Lerner Associates, Inc. (“David Lerner”) — including Energy 11, L.P. (“Energy 11”) and Energy Resources 12, L.P. (“ER12”) — may be able to recover investment losses through FINRA arbitration, in the event that the investor’s broker lacked a reasonable basis for the recommendation, or if the nature of the investment including its many risk components was misrepresented by the financial advisor. Energy 11 is a Delaware limited partnership formed in 2013 “to acquire producing and non-producing oil and natural gas properties onshore in the United States and to develop those properties.” Specifically, as of March 31, 2017, Energy 11 had made key acquisitions in certain Sanish Field Assets (for approx. $340.5 million) located in North Dakota in proximity to the Bakken Shale.
ER12 was formed in 2016 as a Delaware limited partnership, with essentially the same objective as Energy 11, namely to “acquire producing and non-producing oil and gas properties with development potential by third-party operators on-shore in the United States.” On February 1, 2018, ER12 closed on the purchase of certain Bakken Assets, including a minority working interest in approximately 204 existing producing wells and approximately 547 future development locations, primarily in McKenzie, Dunn, McLean and Mountrail counties in North Dakota.
Structured as limited partnerships, both Energy 11 and ER12 carry significant risks that may not be adequately explained to retail investors in marketing pitches by financial advisors who may recommend these complex financial products. To begin, both Energy 11 and ER12 were only recently formed (2013 and 2016, respectively) and have very little operating history. Moreover, each limited partnership is helmed by a CEO and CFO, Glade Knight and David McKenney, whose primary experience is in the real estate industry, not the oil and gas arena. Oil and gas investments by their very nature are extremely volatile as they are subject to the boom and bust cycles which characterize the oil market.
As recently reported, both the SEC and FINRA have commenced their own investigations into GPB Capital Holdings, LLC (“GPB”). GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending. These investigations by federal regulators come on the heels of Massachusetts securities regulators announcing in September 2018 their own investigation into GPB, as well as the sales practices of more than 60 independent broker-dealers who reportedly offered private placement investments in various GPB funds to their clientele.
On November 9, 2018, GPB Capital Holdings, LLC (“GPB”) notified certain broker-dealers who had been selling investments in its various funds that GPB’s auditor, Crowe LLP, elected to resign. As reported, GPB’s CEO, David Gentile, stated that the resignation purportedly came about “[d]ue to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters.” GPB has since engaged EisnerAmper LLP to provide it with audit services moving forward.
Despite FS Investment Corporation II’s (“FSIC II”, or the “Company”) providing an estimated value of $8.31 a share, recent publicly-available information concerning pricing suggests a lower value, with secondary market transactions reportedly at prices of between $7.20 and $7.31 a share and a third-party tender offer being completed at $5.15 a share.
Recent pricing on shares of Cole Credit Property Trust V, Inc. (“CCPT V” or, the “Company”) – at reported prices of $17.25-$17.75 – suggests that investors who chose to sell their shares on a limited secondary market may have sustained considerable losses of up to 30% (excluding any distributions received to date). Formed in December 2012, CCPT V is structured as a Maryland corporation. As a publicly registered, non-traded real estate investment trust (“REIT”), CCPT V is focused on the business of acquiring and operating “a diversified portfolio of retail and other income-producing commercial properties.” As of October 31, 2018, the Company’s real estate portfolio consisted of 141 properties across 33 states, with portfolio tenants spanning some 26 industry sectors.
Headquartered in Newport Beach, CA, KBS Real Estate Investment Trust II, Inc. (“KBS II”) was formed as a Maryland REIT in July 2007. Pursuant to its public offering, KBS II offered 280 million shares of common stock, of which 200 million shares were registered in its primary offering, and an additional 80 million common shares were registered under the non-traded REIT’s dividend reinvestment plan. KBS II’s initial offering closed on December 31, 2010, with 182,681,633 shares sold, thus raising gross offering proceeds of $1.8 billion.
As recently reported, the Massachusetts Securities Division (the “Division”) has commenced an investigation into the sales practices of some 63 independent broker-dealers who offered private placements sponsored by alternative asset manager GPB Capital Holdings, LLC (“GPB”). Specifically, the Division has intimated that it began an investigation into GPB following a recent tip concerning the firm’s sales practices which allegedly occurred not long after GPB announced that it was temporarily halting any new capital raising efforts, as well as suspending any redemptions.
As recently reported, third party real estate investment firms Everest REIT Investors I LLC and Everest REIT Investors III LLC, two private affiliated entities, commenced an unsolicited tender offer to purchase approximately 8.8 million shares of CNL Healthcare Properties, Inc. (“CNL Healthcare”) common stock for $7.50 each. Unless amended, this unsolicited tender offer will expire on August 31, 2018. As of December 31, 2017, CNL Healthcare reported a net asset value (NAV) of $10.32 per share. Thus, the recent tender offer pricing represents an approximate 27% discount on CNL’s recent NAV pricing and suggests that investors may have incurred principal losses on their investments.
On May 30, 2018, the Securities and Exchange Commission (“SEC”) filed a civil complaint against Mr. Steven Pagartanis, alleging that the East Setauket, NY stockbroker purportedly “[d]efrauded at least nine retail investors of approximately $8 million by soliciting and selling them securities using false and misleading statements from 2013 to at least February 2018 (the ‘Relevant Period’).” During the Relevant Period, Mr. Pagartanis was affiliated with Cadaret, Grant & Co., Inc. (“Cadaret”) (CRD# 10641) from 2012 – 2017 and, thereafter, with Lombard Securities Incorporated (CRD# 27954) (“Lombard”).