Securities Arbitration Lawyer Blog
Energy 11, L.P. is an illiquid, non-traded limited partnership sold as private placement security exclusively by broker-dealer David Lerner Associates, Inc. The limited partnership invests in the oil, gas, and energy sector, which has been extremely volatile the past several years. Energy 11 was not suitable for most conservative or retired investors.
On November 5, 2011, the Chairman and Chief Executive Officer of Energy 11 GP, LLC, the general partner of Energy 11, L.P. (“Energy 11”), sent a letter to investors of Energy 11 notifying them that partial distributions would resume after a nearly two-year hiatus. The amount of the distribution will be 50% of the regular monthly distribution.
In March 2020, Energy 11 suspended monthly distributions to its limited partners as the partnership took on massive debt. Unbeknownst to many investors, the distributions were merely a return of the limited partner’s original capital investment, not a dividend. Energy 11 currently owes 21 months of unpaid distributions to its limited partners, totaling approximately $42 million.
According to Energy 11’s latest 10-Q filing with the SEC, Energy 11 had $44.48 million in total liabilities as of September 30, 2021. The regulatory filing also disclosed that during October and November 2021, Energy 11 made principal payments of $7 million to pay down the balance on its BF Credit Facility from $34 million to $27 million. As a result of the disclosed principal payments, it is estimated that Energy 11 currently has approximately $37.5 million in total outstanding liabilities.
Between missed distributions to limited partners ($42 million) and total current estimated liabilities ($37.5 million), Energy 11 needs approximately $79.5 million to pay off its debt and make all past-owed distributions to limited partners.
In addition, Energy 11 needs more than $2 million a month, or $6 million a quarter, to make regular monthly distributions based on a 7% annualized distribution rate. According to the November 5th investor letter, Energy 11 hopes to resume its regular monthly distribution in December 2021.
Additionally, Energy 11’s most recent unaudited financial statements filed with the SEC disclosed that the partnership had a net income of $7 million for the third quarter of 2021.
What does that mean for Energy 11 investors?
If Energy 11’s net income remains $7 million each quarter (which is a big if in the volatile energy sector) and the partnership needs $6 million each quarter to make future scheduled distributions, it will have approximately $1 million in excess cash each quarter. That is $4 million in excess cash per year to pay down its debt and catch up on past distributions.
With $79.48 million in outstanding debt and past-owed distributions, it would take Energy 11 nearly 20 years to draw level under this scenario.
Bottom line, although regular monthly distributions may resume in December 2021, it will likely take Energy 11 years of good fortune to pay down its debt and make past owed distributions to limited partners.
Customers of David Lerner Associates, Inc. that have purchased Energy 11 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.
David Lerner Associates, Inc.
David Lerner Associates, Inc. (“David Lerner Associates”) is facing numerous customer complaints about its sale and marketing of Energy 11, L.P. The complaints allege that Energy 11, an illiquid non-traded limited partnership that invests in the volatile energy sector, was unsuitable for investors with modest financial means, low or moderate risk tolerance, and liquidity needs. The complaints also include allegations that David Lerner Associates and its financial advisors misrepresented material features and risks associated with these illiquid, concentrated, and high-fee products, as well as ongoing misrepresentations related to when distribution payments would resume.
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.
Iorio Altamirano LLP is investigating claims on behalf of David Lerner Associates’ customers that purchased Energy 11. To read more about the investigation, please click on the following link: Energy 11, L.P. and Energy Resources 12 L.P.: How to Recover Investment Losses from David Lerner Associates, Inc.
David Lerner Associates has also received several customer complaints about brokers’ recommendations to purchase the Spirit of America Energy Fund (SOAEX). To read more about the Spirit of America Energy Fund, please click on the following link: Spirit of America Energy Fund (SOAEX): How to Recover Investment Losses From David Lerner Associates, Inc.
Earlier this year, the Financial Industry Regulatory Authority (“FINRA”) suspended former David Lerner Associates financial advisor Charles Bonilla from the securities industry for five months for recommendations of what is believed to be SOAEX and Energy 11. FINRA concluded that Mr. Bonilla lacked a reasonable basis to recommend these products because he did not perform reasonable diligence before making the recommendations and failed to understand their fundamental features and risks. To read more about the suspension of Charles Bonilla and FINRA’s allegations, click on the following link: Former David Lerner Associates Financial Advisor, Charles Bonilla, Suspended by FINRA for Unsuitable Energy-Sector Securities – Boca Raton, FL
If a broker at David Lerner Associates recommended Energy 11 to you, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential consultation. Customers may be entitled to compensation without paying any out-of-pocket fees or costs through a contingency fee arrangement with securities arbitration law firm Iorio Altamirano LLP.