More and more investors stung by risky oil and gas investments are now taking legal action. These types of legal claims involve widespread Wall Street abuse, and they expose what is increasingly clear: Neither regulators nor Wall Street, are properly evaluating risks or protecting investors from Wall Street’s institutionalized corruption.

Inappropriate Recommendations for Master Limited Partnerships

For the past few years, many financial professionals in the United States have inappropriately recommended investments called “Master Limited Partnerships” (MLPs) and other oil and gas investments by downplaying, ignoring, or concealing the risks involved with these investments. In doing so, many financial advisors provided incompetent advice and/or advice riddled with conflicts of interest. Unfortunately, we are now seeing the devastating results of this advice: High concentrations of these risky products exist in investors’ portfolios (when they were purportedly designed and sold to provide investors with safety and income), and investors are now experiencing significant losses.

For example, in early 2014, during a Morgan Stanley Master Limited Partnerships and Natural Gas Corporate Access Event, a product called Seadrill Partners LLC was promoted with the following representations:

  • “Attractive long-term contracts with global oil majors;”
  • “Increased production growth coming from Ultra-Deepwater prospects;”
  • “Significant built-in growth opportunities;”
  • “Contracts and order backlogs of approximately $4.5 billion;” and
  • “Significant progress since the Initial Public Offering—More Growth to Come.”

The above descriptions of Seadrill were coupled with Morgan Stanley’s advertising of Seadrill (SDRL) to the investing public, its clients, and its own advisors. Analysts said that Seadrill should be “overweighed” in portfolios until late January of this year. During the last 18 months, of the three-year period in which Morgan Stanley made its “overweight” recommendation, the price of Seadrill plunged from $40 a share to penny stock levels — less than $5 a share. The consequences for investors are devastating.

History and The Business Model Prove Additional

Wall Street firms’ past efforts to downplay the risks of oil and gas investments such as Seadrill are now exposed as misleading. A true investment professional, with integrity, could not legitimately suggest that an investment in a company that drills for oil would not be volatile when the underlying price of oil has fluctuated wildly over the last several decades. On top of the risky and volatile historical prices of oil, the business model of many of these investments (including Seadrill) have additional risks because of its significant amount of debt, or leverage.

Now that investors are suffering devastating losses as a result of these types of volatile and risky oil and gas investments, Wall Street firms are arguing that the losses are the result of geopolitical oil issues that could not have been anticipated. As detailed below, we believe this argument is misleading. Specifically, the credibility of this argument is destroyed by the historical tracking of oil prices, which reveal a pattern of massive volatility and risk inherent in the oil and gas industry and magnified by the industry’s use of leverage.

Dramatic Price Fluctuation Make For Unsafe Investment

In the last 20 years, the price per barrel of crude oil, (West Texas Intermediate—WTI or NYMEX) has fluctuated dramatically. The price soared from $16.28 in December 1998 to $143.45 in July 2008. This represents an almost 900 percent increase in a period of fewer than ten years. Then, less than ten months later, the price had plunged almost 70 percent to $43.66 (February of 2009). A little more than two years later, the price of crude oil had again rocketed back up to $115.76 (April 2011), an increase of more than 250 percent. Finally, last month (January 2016) the price of crude oil fell to $33.25, representing a drop of more than 70 percent in less than five years.

Despite these wild and dramatic fluctuations, financial institutions pitched many, if not most oil and gas investments as safe income. At what point does bad advice crosses the line to fraud in a rigged Wall Street game? People continue to get hurt. Who is accountable? If your lawyer, doctor, or CPA behaved this way, you would sue them in what is commonly referred to as a New York minute. Don’t buy the claim that these financial institutions have no responsibility to you, the investor, to give competent, professional advice that should be unaffected by conflicts of interest.

Seadrill Just One Example of MLP Investments

Once again, Wall Street seems incapable of doing the right thing. Seadrill (SDRL and SDLP) is just one example that illustrates our concerns about the sale of master limited partnerships and other oil and gas products to fixed income investors. Similarly, entities such as Chesapeake Energy, RAAM Global Energy, Adageo Energy, Diamond Offshore (DO), Transocean (RIG), Ocean Rig (ORIG), Atwood Oceanics (ATW), Noble (NE), Rowan Companies (RDC), Cobalt International Energy (CIE) and Ensco (ESV) either face significant headwinds or have already filed for bankruptcy. We also believe ETFs such as the Energy Select Sector SPDR ETF (XLE) face a grim future regarding both price and dividends. These were all heavily recommended by Wall Street firms to main street investors who were looking for reasonable returns with limited risks.

Contact An Attorney to Protect You

Contact an investment fraud attorney at Vernon Litigation Group. We represent investors in courtroom litigation, mediations and arbitrations throughout the United States and have investigated and uncovered fraud involving hundreds of millions of dollars in pursuit of legal claims on behalf of wronged investors.