Individual Investors have Lost Billions on Engery Related Leveraged Master Limited Partnership (MLP) Closed End Funds
Over the past several months, individual investors have been reporting significant losses in oil, gas and commodity related investments solicited and sold by their financial advisors. Because these investments, particularly when held in concentrated positions, are very volatile they pose serious risk to portfolios.
One of the more popular investment vehicles, the investments that are now creating significant investor losses are called leveraged Master Limited Partnership (MLP). MLPs are closed-end funds that have suffered significant losses in the response to the dramatic decline in oil and gas commodity prices. Over three quarters of the MLP securities market (nearly $500 billion in capitalization) is occupied by energy and natural resource companies.
In the past year, investors have lost approximately $20 billion in publicly traded MLPs and oil funds which equates to nearly 80% loss in principal investment. These statistics don’t include losses from $37 billion of bonds sold by the partnerships in the five years since 2010 or losses from private placement partnerships. However, wire house brokerage firms and banks, such as Wells Fargo, Citigroup, Morgan Stanley and others, have collectively reaped an estimated $1.1 billion in fees for selling these esoteric and speculative products to individual investors.
MLPs are attractive to investors, particularly retirees seeking income, as they typically pay significantly higher yield the more main stream investments. Unfortunately, when the investments are pitched, the financial advisor often leaves out the disclosure about the significant risk inherent in these investments, particularly when they comprise a significant percentage of an overall investment portfolio. The MLP and other energy-related investments were solicited as a way to receive steady income while capitalizing on the world-wide energy boom. That boom of course came to a crashing halt with the steady decline in oil prices that began over a year ago, taking the MLPs with them.
Many brokers and investment advisors recommended these investments on the assumption energy prices would continue to rise and they pay a substantial concession or commission. If your financial professional recommended MLPs and other energy-related investments but left out a discussion or disclosure regarding the accompanying risks to principal, or if your broker failed to conduct reasonable due diligence on the investment and underlying company, you may have a claim for damages. Brokers are required to understand the risks of the Oil and Gas MLP investments and fully disclose those risks to their clients. If they did not, the investors may have claims for unsuitability, over-concentration, failure to supervise, breaches of fiduciary duty among others.
The stock market attorneys at Colling Gilbert Wright & Carter have decades of combined experience helping victims of unscrupulous brokers get justice. To schedule your free consultation or to learn more about your rights, please contact us online or by calling (407) 712-7300 today. Located in Florida, our FINRA attorneys represent victims of fraud throughout the United States.