Hard Rock Exploration, Inc. (“Hard Rock”) of Charleston, West Virginia and certain of its affiliate entities, including Blue Jacket Gathering LLC, Blue Jacket Partnership, Caraline Energy Company, and Brothers Realty, LLC (“Hard Rock Affiliates”), are independent oil and gas development companies.

On September 5, 2017, Hard Rock and Hard Rock Affiliates filed for bankruptcy protection in the Southern District of West Virginia Bankruptcy Court (2:17-bk-20459). Shortly after filing for Chapter 11 bankruptcy, Hard Rock reported a monthly cash flow shortage of $325,000. According to Hard Rock’s lender, Huntington National Bank, “rehabilitation of the Debtors’ business is impossible” due to their ongoing hemorrhaging of cash.

Hard Rock and Hard Rock Affiliates operate approximately 390 well sites in the Appalachian Basin. In addition, Caraline Energy Co. owns and maintains approximately 365 miles of pipeline developed to support natural gas collection.

Included among Hard Rock’s offerings are private placement investments such as Hard Rock Partners 2011-A L.P. Structured as a limited partnership, such an investment is very complicated and risky. To begin, private placements often carry considerable up-front commissions and fees, which serve as an immediate “drag” on any investment. Further, private placements are illiquid investments; thus, once an investor buys in, it is often difficult to readily exit the investment position.

Brokerage firms that market private placements must first conduct due diligence on the investment. The due diligence rule stems from FINRA Rule 2111, the so-called suitability rule, which mandates that a brokerage firm have reasonable grounds to believe that an investment recommendation to purchase a security is suitable for a given customer. This principle is further expanded and amplified in FINRA Notice to Members (NTM) 03-71, which states that a brokerage firm must perform significant due diligence before recommending a private placement investment to a customer. By recommending an investment to a customer, the brokerage firm is essentially representing that a reasonable investigation of the merits of the investment has been conducted.

Additionally, through NTM 10-22, FINRA has provided further guidance to brokerage firms and their registered representatives with regard to the degree and scope of due diligence required when vetting oil and gas investments. Specifically, FINRA has advised the brokerage industry that due diligence on an oil and gas investment may include: “visiting and inspecting a sample of the issuer’s assets and facilities,” in addition to “carefully examining any geological, land use, engineering or other reports by third-party experts…”, and “obtaining, with respect to energy development and exploration programs, expert opinions from engineers, geologists and others…” as necessary to determine the suitability of the investment.

Investors in private placement investments may have arbitration claims if the broker or investment advisor who recommended the investment lacked a reasonable basis to make the recommendation, or failed to disclose the risks associated with such an investment. Investors may contact attorneys at Law Office of Christopher J. Gray, P.C. by telephone at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in various oil drilling programs offered by Vista Resources, Inc. (“Vista”), may be able to recover losses sustained on their investment through arbitration before FINRA, in the event that the investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment — including its risk components — was misrepresented by the advisor and his or her brokerage firm. Founded in 1987, Vista is headquartered in Pittsburgh, PA. Over the course of the past several decades, Vista has managed roughly 60 drilling programs, typically structured as industry joint ventures or limited partnerships.

Included among Vista’s recent programs are: Vista Drilling Program 2011-1, Vista Drilling Program 2012, and Vista Drilling Program 2013-2 (collectively, “Vista Programs”). These Vista Programs are extremely complex and risky investment vehicles, for a number of reasons. To begin, these private oil and gas investments charge very high fees to investors. For example, Vista charges investors an approximate 10% up-front commission. In addition, Vista charges an approximate 12% markup fee on the costs associated with drilling for productive oil reserves. Such high up-front commissions and fees act as an immediate “drag” on the initial investment, and present significant risk to the uninformed retail investor.

Further, these Vista Programs are allowed to use up to 20% of investor capital to drill speculative exploratory wells. A broker recommending such an investment has a duty to inform the investor of such risks, and of the capital-intensive and speculative nature of oil drilling as an investment. Moreover, the brokerage firm — and by extension, the broker — recommending such an investment, have a duty to first conduct due diligence on the investment.

As a commodity, the price movement of oil has historically been very volatile (boom and bust cycles are typical), and accordingly, many illiquid oil and gas investments such as the Vista Programs are not suitable for ordinary investors. Ultimately, the financial advisor and his or her firm have an affirmative duty to determine if the investment is suitable for the investor, pursuant to FINRA Rule 2111, in light of the investor’s profile and stated investment objectives. In instances where an investor’s account becomes over-concentrated in oil and gas investments, or a broker fails to disclose the risks associated with such an investment or investment strategy, the broker and his or her firm may be liable for losses sustained.

Investors with questions about a possible claim concerning investments in any of the Vista Programs, or other oil and gas related investments, may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in the Triloma EIG Energy Income Fund (the “Triloma Perpetual Fund”) and the Triloma EIG Energy Income Fund – Term I (the “Triloma Term Fund”) (collectively, the “Triloma Funds”) may be able to recover their investment losses through FINRA arbitration, in the event that the investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the financial advisor. The Triloma Funds are publicly registered, unlisted closed-end management investment companies under the Investment Company Act of 1940 (’40 Act) that focus on investing in privately originated energy company and energy project debt. The Triloma Funds are managed by Triloma Energy Advisors and EIG Credit Management Company.

On March 26, 2018, the Board of Trustees of the Funds approved a plan of liquidation of each respective fund, authorizing the liquidation and dissolution of the Triloma Funds. Pursuant to the liquidation plan, the Triloma Funds will not engage in any further business activities, except for the purpose of winding down operations and business affairs. Further, in accordance with the plan of liquidation, the Boards agreed to terminate each funds’ respective distribution reinvestment plan and previously approved monthly distributions.

Under the plan of liquidation, the Triloma Funds have agreed to sell their originated investments to a third-party and will use a portion of the proceeds to pay all of their outstanding debts, claims and obligations. Triloma Funds’ shareholders can expect to receive an initial cash liquidating distribution on or about May 15, 2018. To the extent that any assets might remain after such liquidation payments and satisfaction of final expenses, there will be a second liquidating distribution above a threshold of $100 per shareholder made on or before June 30, 2018.

Investing in unlisted or non-traded securities — including non-publicly traded real estate investment trusts (“REITs”), business development companies (“BDCs”), and energy sector investment vehicles including closed-end management companies such as the Triloma Funds — often is a risky proposition. Such investments are typically complex in their structure, often charge high fees and commissions payable to the fund sponsor and broker recommending the investment (as high as 15% of the initial capital outlay in some instances), and are illiquid.

Moreover, investing in the oil and gas sector carries with it unique risks, and many oil and gas investments may not be suitable for the average, retail investor. When a broker recommends an oil and gas investment to a client, the brokerage firm and broker first have a duty to conduct due diligence on the investment. In addition, the financial advisor has a duty to determine if the investment is suitable in light of the investor’s profile and stated investment objectives.

Attorneys at Law Office of Christopher J. Gray, P.C. have substantial experience representing clients in cases involving non-conventional investments and oil and gas-related securities. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.