Articles Tagged with oil and gas fraud

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with RBC brokers who have oversold energy stocks and other energy-related investments. Although these days energy stocks are among the worst investments to own – the pandemic and oil & gas glut have severely depressed demand — prior to this year brokers had been aggressively pitching petroleum-producing companies. Brokers who aggressively sold energy stocks knew how volatile the energy sector has become, yet filled investors’ portfolios with oil and gas issues. Thousands of investors have legitimate claims against their advisors for overselling unsuitable investments.

Companies that once were opening drilling operations at a breakneck pace are facing bankruptcy as the slump in the industry worsens. Investors who bought individual energy stocks, exchange-traded or mutual funds are feeling the pain.Most recently, investors filed claims against RBC brokers Joseph Ijong Chu and Christopher Lawrence Phillips, who worked at the firm’s Stamford, Connecticut, office. The brokers face investor claims of more than $2 million for reportedly selling “unsuitable investments in oil-producing and industrial metals & materials stocks leading to an over-concentration in those sectors.”

One claim against Chu alleges the broker sold $1.6 million in energy investments to a client between Sept. 18, 2018, through Jan. 20, 2020. The complaint states that the stocks not only declined in value, but were “outside their [customers’] investment objectives.” A separate, $500,000 claim against Chu, filed in July, 2020, alleged he “misrepresented the risk of allocation in energy and material sectors investments and over concentrated the Claimant’s accounts in highly volatile investments.”

Chicago-based Stoltmann Law Offices continues to represent investors who’ve suffered losses in connection with financial advisors who have oversold energy stocks and other energy-related investments. With the COVID-19 pandemic depressing demand for everything from gasoline to jet fuel, it’s been a mostly rotten year for energy stocks. In fact, when news first hit the markets in early March, stocks in many oil & gas companies and funds that invested in them crashed. At one time, the Energy Select SPDR (XLE), an exchange-traded fund that invests in energy companies, was down as much as 58%.

The net effect of tens of millions of Americans sheltering in place, avoiding travel and not commuting slashed demand for fuels. Only a handful of people were getting on jets, buses, ships, trains, or driving to work. That resulted in energy companies eliminating dividends and losing money.  While the economy has recovered somewhat as more states have re-opened in recent months, energy demand is nowhere near where it was at the beginning of 2020. The U.S. economy is now in a recession, which may continue into 2021.

What is important to realize about oil/gas prices is, the decline in energy demand actually began a few years ago – primary energy consumption dropped by half in 2019 alone — hasn’t stopped brokers from selling investments in oil & gas companies. They have sold stocks, limited partnerships, and mutual funds that concentrate in fossil fuels, which are volatile commodities and have a long history or volatility.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous investment brokers selling exchange-traded products. Many of these high-risk products are unsuitable for retail investors.

With the COVID-19 crisis roiling financial markets, many investors have been sold products that rise when market indexes or individual securities fall. Many “exchange-linked products” (ETPs) often use borrowed money, or leverage, to magnify gains when the market drops, but they can also increase losses. They are generally only suitable for sophisticated investors and are linked to complex underlying futures contracts.

When the coronavirus crisis first made major headlines in the U.S. in early March, the stock, bond and commodities markets crashed. Since markets over-react to widespread greed and fear, traders went into mass selling mode over (later justified) expectations that demand for nearly everything from luxury goods to commodities would drop dramatically.

Stoltmann Law Offices continues to investigate William Mark Heiden, a registered broker with Wedbush Securities in Los Angeles, California. Mr. Heiden has six customer disputes against him, three of which are currently pending and three of which are resolved. In October of 2015, Heiden was accused of wrongful, intentional, fraudulent and deceptive activities including unsuitable and unauthorized trading, falsifying documents, misrepresentation and omission of material facts. The alleged damages were $1,500,000. In the second of three resolved claims in October 2015, Heiden was accused of not executing a limit sell order and his customer allegedly asserted that he did not understand the implication of a limit sell order. The monetary compensation amount in the case was $549,920 and the individual contribution amount was $275,000. The alleged damages were $14,000 and the settlement amount was $9,000. The third resolved action was in February of 2016 and the allegations state that the conservative investors were shocked to discover non-investment grade status of bonds in their accounts; questioned whether it was prudent to concentrate investments in the energy sector, noted the severe decline in the value of energy sector securities and requested an investment plan and guidelines, which was not fulfilled. No action was taken and the case was closed, as his firm, Wedbush Securities, denied the claim.

The first of the three pending claims against him alleged, from July 2013 until the present, Heiden engaged in wrongful, intentional, fraudulent and deceptive activities in client accounts including unsuitable and unauthorized trading. The complaint against him includes claims for breach of fiduciary duty, constructive fraud and violation of California code. The alleged damages were of an unspecified amount causing losses over $700,000. This claim was filed in September of this year. The second claim, also filed in September of this year, stated wrongful conduct, breach of fiduciary duty, constructive fraud, fraud by misrepresentation and omission, breach of written contract, failure to supervise and control and violation of state and federal securities laws. Alleged damages were over $1 million. The third pending customer dispute against Heiden was received in August of this year and alleged that he engaged in unauthorized trading and accrued a significant amount of margin debt for the client, when the client did not intend to use margin for trading purposes. Alleged damages are $200,000.

Mr. Heiden recommended Energy XXI Ltd Bermuda (symbol EXXI) to some of his clients. Energy XXI was an independent oil and natural gas development and production company whose growth strategy emphasized acquisitions and organic drilling programs. The company’s properties are located in the U.S. Gulf of Mexico waters and the Gulf Coast onshore.  Unfortunately, the security lost over 95% of its value in an approximate six month period and is now valued at less than 10 cents a share.

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