Securities Investigation involving American Eagle Energy Junk Bonds

Friday, March 6th, 2015

According to a Bloomberg report, less than seven months after raising $175 million in a junk-bond offering, American Eagle Energy Corp. recently announced that it wouldn’t make its first interest payment on the debt. Instead, it hired two advisers — Canaccord Genuity Group Inc. and Seaport Global Holdings LLC — to negotiate with bondholders on a plan to restructure its debt.

It appears that the holders of the notes are left to consider how to maximize recovery of their investment, either by giving the company more time to try to become profitable or by pushing it into default.

American Eagle Energy’s first-lien bonds, which are secured by its assets, fell 10.25 cents to 31.75 cents on the dollar at 4:23 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They traded at par in September.

The oil and gas producer, which operates in North Dakota’s Bakken shale, has 30 days to make the $9.8 million interest payment before triggering a default on the 11 percent bonds due September 2019.

American Eagle Energy’s shares have lost 96 percent since the bonds were issued in mid-August, closing at 20 cents in New York.

According to a statement, American Eagle Energy stopped drilling in November and suspended its 2015 capital plan because of the drop in oil prices.

Here is the exact language of American Eagle Energy’s announcement, take from an SEC filing:

“On March 2, 2015, American Eagle Energy Corporation (“AMZG,” “we,” or “our”) provided an operations update and production guidance for our fourth quarter ending December 31, 2014, capital spending and production guidance, and estimated proved reserves for year-end 2014. We also announced that we (i) deferred the March 2, 2015, semi-annual $9.8 million interest payment in respect of the bonds that we sold in August 2014, (ii) continue to assess our near- and mid-term liquidity, (iii) in consultation with our standard advisors, as well as two newly engaged, experienced investment banks, continue to explore options to strengthen our balance sheet, and (iv) will utilize the 30-day grace period provided in the related bond indenture to determine whether to make the interest payment.”

Given the current state of oil prices, this is likely one of the first oil companies to default on their debt.  A number of oil companies recently raised money for operations through so called “junk bond” capital raises.  Although junk bonds pay high yield, they also carry higher than average risk that the company will default on the bond.

The White Law Group is investigating the liability that brokerage firm’s may have for recommending this risky investment.  Brokerage firms are required to perform adequate due diligence on any investment they recommend and to adequately disclose the risks of any investment.  Additionally, brokerage firms are required to ensure that all investment recommendations made are suitable in light of the client’s age, investment experience, investment objectives, net worth, and income.

If it can be demonstrated that a brokerage firm failed to perform adequate due diligence, to properly disclose the risks, or recommended an investment unsuitably, the firm may be held responsible for any resulting losses in a FINRA arbitration claim.

If you suffered losses investing in American Eagle Energy debt and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.  The firm represents investors throughout the country in FINRA arbitration claims against their brokerage firm.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

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Securities Investigation involving JP Morgan Russian Securities plc

Friday, March 6th, 2015

The White Law Group is investigating potential claims involving JP Morgan Russian Securities plc product.

Specifically, The White Law Group is investigating the liability that brokerage firm’s may have for recommending this risky investment.  Brokerage firms are required to perform adequate due diligence on any investment they recommend and to adequately disclose the risks of any investment.  Additionally, brokerage firms are required to ensure that all investment recommendations made are suitable in light of the client’s age, investment experience, investment objectives, net worth, and income.

If it can be demonstrated that a brokerage firm failed to perform adequate due diligence, to properly disclose the risks, or recommended an investment unsuitably, the firm may be held responsible for any resulting losses in a FINRA arbitration claim.

JP Morgan Russian Securities plc is a United Kingdom registered investment trust.  The fund’s objective is to provide capital growth from investment in Russian securities. Unfortunately, with the political climate in Russia and the drop in oil prices, the fund has suffered disastrous losses.

The funds top 10 holdings as of January 31, 2015 are as follows:

1 LUKOIL OAO 12.50%
2 MAGNIT OJSC 9.90%
3 SURGUTNEFTEGAZ 8.60%
4 JSC MMC Norilsk Nickel ADR 8.10%
5 MOSCOW EXCHANGE MICEX OJSC 6.40%
6 Alrosa 6.30%
7 TATNEFTEPROM 4.10%
8 MEGAFON(OJSC) 3.50%
9 PHOSAGRO OJSC 3.30%
10 GAZPROM NEFT OJSC 3.10%

 

If you suffered losses investing in JP Morgan Russian Securities plc and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.  The firm represents investors throughout the country in FINRA arbitration claims against their brokerage firm.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

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Update for SandRidge Energy and Hercules Offshore Bond Investors

Wednesday, March 4th, 2015

The White Law Group continues to investigate the liability that brokerage firms may have for recommending risky investments in shale energy companies and their leveraged debt (primarily in the form of junk bonds).

Two of the most leveraged companies in the energy space — Hercules Offshore and SandRidge Energy  – have recently been downgraded by separate analysts to zero, signally significant concern in these two companies ability to repay their debt.

As of Feb. 15, Hercules had only 10 of its 24 rigs working, with four of those working rigs completing their contracts within the next three months.

SandRidge bonds are now trading at under 70 cents on the dollar for a more than 14% yield. Recently, KLR Group downgraded SandRidge to zero.

Here is a listing of the SandRidge bond offerings:

 

Sandridge Engy 7.5% 03/15/2021 1,175.0 70.9 7.500 Fixed No No 15.00
Sandridge Engy 7.5% 03/15/2021 900.0 7.500 Fixed No No
Sandridge Engy 7.5% 02/15/2023 825.0 69.3 7.500 Fixed No No 14.04
Sandridge Engy 7.5% 02/15/2023 825.0 7.500 Fixed No No
Sandridge Engy 144A 7.5% 02/15/2023 825.0 7.500 Fixed No Yes
Sandridge Engy 8% 06/01/2018 750.0 8.000 Fixed No No
Sandridge Engy 8.125% 10/15/2022 750.0 0.0 8.125 Fixed No No
Sandridge Engy 144A 8.125% 10/15/2022 750.0 8.125 Fixed No Yes
Sandridge Engy 8.125% 10/15/2022 750.0 73.4 8.125 Fixed No No 13.89
Sandridge Engy 8.625% 04/01/2015 650.0 8.625 Fixed Yes No
Sandridge Engy 8.75% 01/15/2020 450.0 8.750 Fixed No No
Sandridge Engy 144A 8.75% 01/15/2020 450.0 8.750 Fixed No Yes
Sandridge Engy 8.75% 01/15/2020 450.0 77.6 8.750 Fixed No No 15.47
Sandridge Engy 9.875% 05/15/2016 365.5 9.875 Fixed Yes No
Sandridge Engy 7.5% 03/15/2021 275.0 7.500 Fixed No No
Sandridge Engy 144A 7.5% 03/15/2021 275.0 7.500 Fixed No Yes
Sandridge Engy 144A 7.5% 03/15/2021 0.002 7.500 Fixed No Yes

 

 

Here is a listing of the Hercules bond offerings:

Hercules Offshore 8.75% 07/15/2021 400.0 41.5 8.750 Fixed No No 29.67
Hercules Offshore 144A 8.75% 07/15/2021 400.0 8.750 Fixed No Yes
Hercules Offshore 7.5% 10/01/2021 300.0 34.8 7.500 Fixed No No 31.58
Hercules Offshore 144A 7.5% 10/01/2021 300.0 7.500 Fixed No Yes
Hercules Offshore 144A 6.75% 04/01/2022 300.0 6.750 Fixed No Yes
Hercules Offshore 7.125% 04/01/2017 300.0 7.125 Fixed Yes No
Hercules Offshore 6.75% 04/01/2022 300.0 43.0 6.750 Fixed No No 23.36
Hercules Offshore 10.5% 10/15/2017 300.0 Middle 102.8 10.500 Fixed No No 9.80
Hercules Offshore 144A 10.25% 04/01/2019 200.0 10.250 Fixed No Yes
Hercules Offshore 10.25% 04/01/2019 200.0 113.3 10.250 Fixed No No 6.94
Hercules Offshore 144A Cv 3.375% 06/01/2038 83.1 3.375 Fixed Yes Yes
Hercules Offshore 144A 7.125% 04/01/2017 79.9 7.125 Fixed Yes Yes
Hercules Offshore 144A 10.5% 10/15/2017 46.3 Middle 10.500 Fixed No Yes
Hercules Offshore Cv 3.375% 06/01/2038 7.027 100.0 3.375 Fixed Yes No 3.37
Hercules Offshore 10.5% 10/15/2017 10.500 Fixed Yes

 

Investors in these companies have options.  If you purchased investments in SandRidge or Hercules at the recommendation of your financial advisor, you may have recourse.

Brokerage firms are required to perform due diligence on any investment they recommend and to ensure that all recommendations are suitable in light of the client’s age, investment experience, net worth, income, and investment objectives.  If they fail to do either, they can be held liable for losses in a FINRA arbitration claim.

To discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

For more information on the firm, visit http://www.whitesecuritieslaw.com.

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FINRA Arbitration Statistics through early 2015

Tuesday, March 3rd, 2015

FINRA recently reported updated statistics on the number and type of arbitration claims being filed in 2015 relative to previous years.  For the full statistics published by FINRA, visit http://www.finra.org/ArbitrationAndMediation/FINRADisputeResolution/AdditionalResources/Statistics/.

A couple of thoughts on the numbers:

(1) Filings for January 2015 are down 21% from the previous year – This is likely a reflection of the upward moving market in 2014 and the fact that the last market correction was back in 2008.  Although bad financial advisors are ripping off their clients all of the time, clients rarely realize it in an upward moving market.  It is not until the market corrects that many of these bad acts are flushed out, so when the market rises it is not surprising that filings would be down.

(2) 21 Churning claims filed in January 2015 – When the market is rising, you often see a rise in churning claims as well.  Likely because bad advisors think it is easier to whitewash high turnover (and high commissions) so long as the account continues to be profitable – which is obviously easier to do when the market is up over 30% as it was in 2014.  We would anticipate a continued increase in the number of churning claims as long as the market continues this bull run.

(3) The most complained about security type was common stock.  This is a departure from the last few years.  Again, likely a reflection of the upward moving market.  When the markets rise, complex structured products (like non-traded REITs, limited partnerships, private placements) are generally rising as well, thereby reducing the number of claims brought involving such products.  However, when the market does correct, we would anticipate a spike in claims involving structured products because ultimately these are the products with the highest commissions and therefore the highest incidence of abuse by bad advisors looking to maximize their compensation.

(4) No auction rate securities cases.  This isn’t surprising.  These claims have decreased over the last few years as regulators have stepped in and most firms have agreed to buy back the investments from their clients.

(5) 78% of FINRA cases filed ended with a settlement between the parties.  This number has remained consistent over the last few years and confirms that the majority of cases filed with FINRA do end up settling.  This is likely due to the arbitrary nature of FINRA arbitration and the risk both sides take leaving their fates up to FINRA arbitration panels.  It seems that most parties in FINRA arbitration claims would prefer the certainly of settlement over the uncertainly of what a FINRA panel may rule.

(6) Only 38% of FINRA claims taken to hearing resulted in an award for the Claimant (down from 47% in 2010).  We would attribute this to arbitrator fatigue.  Arbitrators have been listening to claims coming out of the 2008 market correction for approximately 7 years now and it is natural for them to start comparing the newer cases to prior cases they already heard.  When those cases are not as strong as a case they previously heard, it becomes that much more difficult to convince them to award damages.  These statistics may continue to decline until another market event occurs.

The foregoing information is the opinion of the FINRA arbitration attorneys of The White Law Group.  The firm represents investors in FINRA arbitration claims throughout the country.  For a free consultation with a securities attorney, please call the firm’s Chicago office at 312/238-9650.  For more information on the firm, visit http://www.whitesecuritieslaw.com.

 

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Securities Investigation involving UBS’s V10 Enhanced FX Carry Strategy

Monday, March 2nd, 2015

According to reports, a lawsuit was recently filed  against UBS Group for selling its V10 Enhanced FX Carry Strategy product without allegedly explaining the risk and complexity of the investment.

The lawsuit reportedly further alleges that UBS’s V10 Enhanced FX Carry Strategy was pitched as a high-yielding foreign-exchange investment that used computer algorithms to minimize the risk of losses in periods of volatility.

To compound matters for investors in this product, now investigators at the Department of Justice are reportedly examining whether UBS traders shortchanged investors in UBS’s V10 Enhanced FX Carry Strategy by overcharging them when they carried out the currency trades needed to execute the strategy.

The White Law Group is investigating the liability that brokerage firm’s may have for recommending this risky investment.  Brokerage firms are required to perform adequate due diligence on any investment they recommend and to adequately disclose the risks of any investment.  Additionally, brokerage firms are required to ensure that all investment recommendations made are suitable in light of the client’s age, investment experience, investment objectives, net worth, and income.

To the extent that a brokerage firm fails to perform adequate due diligence, to properly disclose the risks, or recommends an investment unsuitably, the firm may be held responsible for any resulting losses in a FINRA arbitration claim.

According to the offering materials, investors in UBS’s V10 Enhanced FX Carry Strategy bought notes whose value was tied to an index called the V10. Marketing documents on UBS’s website show how the index was calculated: First, currencies from the Group of 10 countries are ranked daily by their one-month interest rates. Using forward contracts, the bank bets that the three highest-yielding currencies will advance and the three lowest will decline. When volatility rises above a predetermined level, the positions are reversed.

Betting on the currency market is extremely risky and should only be undertaken by extremely sophisticated and/or institutional investors.

Investing in UBS’s V10 Enhanced FX Carry Strategy may not be suitable for you if:

¨ You seek an investment that offers any principal protection.
¨ You are not willing to accept the risks of foreign exchange trading in general.
¨ You do not believe the Index Return will be positive.
¨ You are not willing to make an investment that will be exposed to both upside and downside price risks on long and short positions in the foreign exchange forward contracts underlying the UBS V10 Currency Index as they may be dynamically adjusted in response to market conditions.
¨ You prefer lower risk (and accept the potentially lower returns) of fixed income investments with comparable maturities and issuer credit ratings that bear interest at a prevailing market rate.
¨ You seek current income from your investments.
¨ You are unable or unwilling to hold the Securities to maturity.
¨ You seek an investment for which there will be an active secondary market.
¨ You are not willing or are unable to assume the credit risk associated with UBS, as issuer of the Securities.

Unfortunately it appears that some financial advisors may have downplayed these risks and recommended UBS’s V10 Enhanced FX Carry Strategy unsuitably.

If you invested in UBS’s V10 Enhanced FX Carry Strategy and you would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

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