Securities Arbitration Lawyer Blog
An elderly couple in their upper 80s filed a FINRA arbitration claim against David Lerner Associates, Inc. (“David Lerner Associates”) to recover losses and damages of up to $1 million. The couple, represented by securities arbitration law firm Iorio Altamirano LLP, alleges that David Lerner Associates recommended an unsuitable investment strategy to invest and concentrate a significant portion of their retirement savings and net worth into risky and high-commission energy-sector securities that were proprietary to David Lerner Associates, Inc.: (1) Energy 11, L.P. (“Energy 11”); (2) Energy Resources 12, L.P. (“Energy 12”); and the Spirit of America Energy Fund (“SOAEX”).
The arbitration claim also alleges that David Lerner Associates and its broker, Robert Rasbach, misrepresented and omitted material information about the investment strategy and the energy investments, including:
- That investing in Energy 11 and Energy 12 involved a “high degree of risk” and was only appropriate for investors willing and able to assume the risk of a “speculative, illiquid, and long-term investment.”
- Energy 11 and Energy 12 were risky energy start-ups that were run by individuals with no experience in the oil and gas industry who were “wildcatting,” or drilling for oil and natural gas in unproven areas that have no concrete historical production, with its success tied to the energy industry and the ability of the partnerships to engage in a “liquidity event.”
- Energy 11 and Energy 12 were “blind pool” investment vehicles that put very few restrictions on what and how they could invest.
- The risks related to concentrating a significant portion of their portfolios into the volatile and risky energy sector.
Customers of David Lerner Associates, Inc. that have purchased proprietary energy-related securities from David Lerner, including Energy 11 and SOAEX, should contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of their legal rights.
Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as David Lerner Associates, Inc.
Energy 11, Energy 12, and SOAEX
Energy 11 and Energy 12 are illiquid and high-risk limited partnerships that were sold exclusively by David Lerner Associates. Each limited partnership was formed to acquire and develop oil and gas properties. The partnerships were “blind pools,” meaning at the time of the initial offering, the partnership had not identified any properties for acquisition.
Additionally, the partnerships’ objectives included making distributions to investors and, five to seven years after the termination of the offering, engaging in a liquidity event. Each limited partnership’s ability to make a return of capital distributions to its partners and to engage in a liquidity event was substantially dependent on the performance of the oil and gas properties in which the partnerships invested.
According to the Energy 11 and Energy 12 prospectuses, investments in the partnerships involve a “high degree of risk,” and these limited partnership interests were appropriate only for investors willing and able to assume the risk of a “speculative, illiquid, and long-term investment.”
Energy 11 suspended distributions to its limited partners in March 2020 before resuming them at a reduced rate in late 2021. Energy 11 accumulates unpaid distributions based on an annualized return of seven percent (7%), and all accumulated unpaid distributions are required to be paid before a final payout can occur. As of December 31, 2022, the unpaid payout accrual for the period from March 2020 through November 2021 totaled $2.387671 per common unit, or approximately $45 million.
In addition, as of Energy 11’s most recent 10-Q filing with the SEC, the limited partnership had $20.38 million in total liabilities for the quarter ended June 30, 2023.
The following is a summary of Energy 11’s current liabilities, including accrued unpaid distributions:
- Total Liabilities: $20.38 million
- Unpaid Accrued Distributions: $45 million
- Total Liabilities 45+ Unpaid Accrued Distributions: $65.38 million.
The Spirit of America Energy Fund (SOAEX) is a mutual fund created for customers of David Lerner Associates that invests 80% of its net assets in energy and energy-related companies. The Spirit of America Energy Fund primarily invests in energy-related entities such as exploration, production, and transmission companies, as well as Master Limited Partnerships (“MLPs”). The fund’s investment objective is to provide investors with long-term capital appreciation and current income. SOAEX’s stock price has plummeted since 2015.
David Lerner Associates, Inc.
David Lerner Associates, Inc. is an SEC-registered broker-dealer and FINRA member with six branch offices in New York, Connecticut, New Jersey, and Florida. David Lerner is notorious in the securities industry and has been sanctioned numerous times by securities regulators, including censures, injunctions, monetary fines, and restitution orders.
David Lerner Associates was the exclusive dealer-manager for Energy 11 and received 6% in selling commissions. David Lerner Associates is also entitled to a contingent incentive fee of up to an amount equal to 4% of gross proceeds of units sold. Based on public disclosures, it appears that David Lerner Associates has received over $22 million in seller commissions for selling Energy 11 to its customers and is potentially entitled to an additional $15 million in contingent incentive fees.
FINRA has brought numerous actions against brokers and supervisors who sold or supervised the sale of David Lerner Associates’ proprietary energy-sector securities. Those include:
- FINRA v. Abbe Jan Wollins, AWC No. 2019063686205 (June 20, 2023)
- “Between August 2015 and April 2018, while associated with [David Lerner Associates], Willins recommended that two customer accounts invest in limited partnerships formed to acquire and develop oil and gas properties without having a reasonable basis to believe those illiquid investments were suitable for the customers. Therefore, Wollins violated FINRA Rules 2111 and 2010.”
- “Customers A and B were a retired married couple who held an investment account with DLA. In August 2015, when Wollins recommended that they invest in an illiquid limited partnership, Customers A and B were approximately 82, retired, and receiving pension and social security benefits and savings. Between August 2015 and December 2016, at Wollins’ recommendation, Customers A and B invested a total of $128,907 in one of the limited partnerships. Wollins also recommended that senior Customer C invest $25,000 in one of the limited partnerships. At the time of his investment, Customer C was 93 and, received social security benefits, and took required withdrawals from an IRA. Customer C understood that his investment in the limited partnership would supplement his monthly income with these returns. Wollins’ recommendations that Customers A, B, and C invest in the energy partnerships were not suitable given their investment profiles. Wollins received $2,448.30 in commissions from these investments.”
- FINRA v. Rande Aaronson, AWC No. 2019063686204 (May 30, 2023)
- “From January 2015 through October 2019, branch manager Aaronson failed to reasonably supervise sales of two illiquid oil and gas limited partnerships, Energy 11, L.P. (E11) and Energy Resources 12, L.P. (E12), to ensure that the sales were suitable for customers given their investment profiles, as required by FINRA Rule 2111 and the firm’s policies and written supervisory procedures (WSPs). Therefore, Aaronson violated FINRA Rules 3110 and 2010.”
- “E11 and E12 are illiquid limited partnerships that registered representatives at DLA sold to their customers. Each limited partnership was formed to acquire and develop oil and gas properties. Additionally, the partnerships’ objectives included making distributions to investors and, five to seven years after the termination of the offering, engaging in a liquidity event. Each limited partnership’s ability to make a return of capital distributions to its partners and to engage in a liquidity event was substantially dependent on the performance of the oil and gas properties in which the partnerships invested. According to the E11 and E12 prospectuses, investments in the partnerships involve a “high degree of risk,” and these limited partnership interests were appropriate only for investors willing and able to assume the risk of a “speculative, illiquid, and long-term investment” (emphasis added).
- “The firm’s WSPs also included a policy specific to a customer’s change of their risk tolerance, as reflected on each customer’s Suitability Profile. The policy prohibited changes to a customer’s risk tolerance solely for the purpose of qualifying the account to engage in a certain transaction. Branch managers had the supervisory responsibility to review Suitability Profiles, to assess the appropriateness of any risk tolerance changes on Suitability Profiles, and to accept and sign Suitability Profiles.”
- FINRA v. Russ Kory, AWC No. 2019063686203 (September 2, 2022)
- “Between August 2015 and September 20 19, while associated with David Lerner Associates, Kory recommended that three firm customers invest in the firm’s proprietary limited partnerships formed to acquire and develop oil and gas properties without having a reasonable basis to believe those illiquid investments were suitable for the customers. Therefore, Kory violated FINRA Rules 2111 and 2010.”
- “Each limited partnership was formed to acquire and develop oil and gas properties located onshore in the United States. The partnerships were “blind pools,” meaning at the time of the initial offering, the partnership had not identified any properties for acquisition. The partnerships’ objectives included making distributions to investors and, five to seven years after the termination of the offering, to engage in a liquidity event. Each limited partnership’s ability to make return of capital distributions to its partners and to engage in a liquidity event was substantially dependent on the performance of the properties in which the partnerships invested. Additionally, according to the prospectuses, investments in the partnerships involve a “high degree of risk” (emphasis added).
- FINRA v. Jeffrey D. Basford, AWC No. 2019063686202 (August 15, 2022)
- “During the course of a FINRA investigation into potential unsuitable sales of proprietary energy products at the firm, Basford declined to appear for on-the-record testimony requested pursuant to FINRA Rule 8210.”
- FINRA v. Charles Bonilla, AWC No. 2020067626001 (February 8, 2021)
- “Between December 2015 and December 2017, while associated with David Lerner Associates, Bonilla recommended that his customers invest in energy sector securities without having a reasonable basis to believe those investments were suitable. Due to Bonilla’s failure to conduct reasonable diligence, there were potential risks and costs of the investments, among other things, that Bonilla did not adequately understand. Accordingly, Bonilla violated FINRA Rules 2111 and 2010.”
- “The fund’s holdings are concentrated in energy-related securities, and the fund’s performance is largely dependent on the condition of the energy industry.”
About Iorio Altamirano LLP
Iorio Altamirano LLP is investigating claims on behalf of David Lerner Associates’ customers who purchased Energy 11 and SOAEX.
To read more about the investigation, please click on the following links:
Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.
We have over 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.
If you have suffered investment losses, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, call the firm toll-free at (855) 430-4010.