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Energy 11 and Energy Resources 12: Complaints, Investigations
Numerous investors have filed complaints against David Lerner & Associates alleging that the broker-dealer firm and its representatives unsuitably recommended investments in Energy 11 and Energy Resources 12, the firm’s proprietary non-public oil and gas limited partnership funds. If your Energy 11 or Energy Resources 12 investment suffered losses, you may have recovery options.
What Are Energy 11 and Energy Resources 12?
Energy 11 LP and Energy Resources 12 LP are limited partnership investments sold by David Lerner & Associates. As the firm’s website explains, Energy 11 “was formed to enable investors to invest in oil and gas properties located onshore in the United States.” A Delaware limited partnership, its objectives include the acquisition of producing and non-producing oil and gas properties; the enhancement of those properties’ value “through drilling and other development activities”; the payment of distributions to investors; and the completion of a liquidity transaction five years after the termination of the LP’s offering in April 2017. Energy 11’s interests include “approximately 215 existing producing wells and approximately 262 future development locations in the Sanish field located in Mountrail County, North Dakota,” the website states, noting that those assets in Sanish Field are operated by Whiting Petroleum Corporation.
Energy Resources 12, meanwhile, described itself in its prospectus as a limited partnership intended to “acquire working and other interests in producing and non-producing oil and natural gas properties in the United States and utilize third-party operators to manage the day-to-day operations.” Its purposes, per the prospectus, “are to generate revenue from the production and sale of oil and gas from the properties we acquire, participate in drilling and other exploration and development activities initiated by the operators of such properties, and distribute cash to our partners.”
Were Energy 11 and Energy Resources 12 Risky Investments?
The prospectuses filed by both Energy 11 and Energy Resources 12 describe the investments as involving “a high degree of risk.” The prospectuses describe a number of these risks. Both documents note that the companies are new entities with no operating histories; that the LPs’ common units are illiquid; that each entity’s general partner is “subject to conflicts of interest”; that Energy Resources 12 cannot guarantee a return on investment; and that each entity’s general partner as well as David Lerner Associates will receive fees and compensation from the sale of common units in the entities. “An investment in the Partnership involves risk,” each prospectus states, “and is suitable only for persons who have adequate financial means, desire a relatively long-term investment and who will not need immediate liquidity from their investment.”
In other words, investments in Energy 11 and Energy Resources 12 may have been unsuitable for investors with limited experience and/or financial means, especially retirees and other investors with liquidity needs and a low risk tolerance.
Why Did Energy 11 Suspend Distributions?
As the Covid-19 pandemic raged in March 2020, Energy 11 temporarily suspended distribution payments to its limited partners, citing the adverse effects of the pandemic on the oil and gas industry. As a report by Investment News noted, the LP resumed paying half its regular monthly distributions in November 2021, then resumed paying its regular monthly distribution—at a rate of 7% annually—later that year. As of that report’s publication, Energy 11 had “$45 million of unpaid distributions.”
Energy 11, Energy Resources 12 Investor Complaints Against David Lerner & Associates
Many investors have already filed complaints against David Lerner & Associates and its registered representatives concerning their recommendations to invest in Energy 11 and Energy Resources 12. The following are just a few examples:
- An October 2020 complaint filed against broker/advisor Daniel Lerner—one of several against him—alleged he misrepresented and recommended an unsuitable investment in Energy 11. In February 2022 the complaint reached a settlement of $918,750.
- A pending October 2020 complaint filed against Martin Lerner similarly alleges he misrepresented and omitted material facts relating to an investment in Energy 12, seeking damages between $50,000 and $100,000. A May 2021 complaint alleging unsuitable Energy 11 recommendations, meanwhile, reached a settlement of $400,000.
- A pending May 2022 complaint against broker Richard Eden alleges unsuitability, misrepresentation and omission, and breach of fiduciary duty relating to an Energy 11 investment. The complaint alleges damages between $100,000 and $500,000.
FINRA Investigates Energy 11 & 12 Sales by David Lerner & Associates
The Financial Industry Regulatory Authority has opened multiple investigations into the sales of Energy 11 and Energy Resources 12 products by David Lerner & Associates representatives. In August 2015, former DLA representative Jeffrey Basford consented to a FINRA sanction barring him from the industry over findings he refused to cooperate with its investigation “into his potential unsuitable sales of proprietary energy products to customers at his member firm,” per a disclosure on his BrokerCheck report.
In July 2022, meanwhile, FINRA determined to bring disciplinary action against Daniel Lerner in connection with allegations he unsuitably recommended investments in Energy 11 and Energy Resources 12. Lerner defended himself against the allegations in a statement on the disclosure. “I vehemently disagree with FINRA’s allegations,” he wrote. “The global COVID-19 pandemic wreaked havoc on several U.S. and global industries, which caused several U.S. companies to, among other things, temporarily suspend distributions, which I believe impacted how some investors viewed the subject investments.”
Energy 11 or Energy Resources 12 Complaints? Call for a Free Consultation
Carlson Law represents investors involved in claims against financial advisors and investment firms throughout the United States. If you or a loved one have suffered losses investing with Energy 11 or Energy Resources 12, please call us at 888-976-6111 or complete our contact form for a free and confidential consultation.