If you are have suffered losses in Bakken Income Fund, you may be able to recover your losses though FINRA arbitration. Please call Kons Law Offices at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your investment loss recovery options.
Bakken Income Fund Investors Can Pursue Recovery of their Losses
If you have suffered losses in the Bakken Income Fund, you may be able to pursue recovery of those losses through FINRA arbitration due to the lack of due diligence on the investment, and inappropriate level of risk that you were exposed to in this particular investment. Private placement investments such as an investment in the Bakken Income Fund are by their nature very risky investments in that there is virtually no oversight from a regulatory agency. Moreover, investors in private placements like the Bakken Income Fund often face significant problems exiting the investment as the securities they purchased in the private offering cannot be easily resold or liquidated as would be the case with a publicly traded security.
While investors can be attracted to private placements due to their potential for much higher returns than other investments, private placements also can be fertile ground for fraud due to a lack of thorough due diligence or complete disclosure in the offering documents. Moreover, the sales process of private placements creates an inherent risk of misrepresentations, and in some cases outright fraud. Brokers who sell private placements typically have the chance to earn very high commissions, ranging anywhere from 5%-15% of the entire investment. These high commissions create a conflict with the broker’s duty to recommend only investments that are suitable for the customer. Customers need to remember that their wealth is not a proxy for an appropriate suitability determination.
Bakken Income Fund’s Investment Adviser is Sanctioned by the SEC
In August 2016, the Securities and Exchange Commission (SEC) sanctioned the investment adviser for the Bakken Income Fund – Coachman Energy Partners and Randall Kenworthy – for allegedly failing to adequately disclose its methodology for calculating the management fees and management-related expenses it charged to the funds it managed. As a result of its
inadequate disclosures, Coachman allegedly overcharged the funds approximately $1.1 million in management fees and $449,000 in management-related expenses. According to the SEC, Kenworthy caused Coachman’s inadequate disclosures regarding its fee and expense calculations in the private funds’ operative documents and Coachman’s Forms ADV filed with the Commission. In addition, Coachman, through Randall Kenworthy, allegedly caused one of the funds to enter into a transaction with an affiliated entity without properly disclosing or obtaining investor consent to the conflicts of interest.
Upon information and belief, Coachman and Kenworthy were also involved with the following Regulation D private placement investments:
- Bakken Drilling Fund III LP
- Bakken Drilling Fund IV LP
- Bakken Drilling Fund IVB LLC
- Coachman Energy Land II LLC
- Coachman Energy VI LP
- Coachman Energy VIB LLC
- Coachman Energy VII Offshore Feeder Fund LTD
- Coachman Energy VII Onshore Feeder Fund LP
Brokerage Firms Had a Duty to Conduct Proper Due Diligence on Bakken Income Fund
Securities broker-dealers have a regulatory duty to ensure that any investments they recommend to customers are suitable for them. This is especially important for brokerage firms selling private placements like the Bakken Income Fund. FINRA Rule 2111 (NASD Rule 2310) requires that securities broker-dealers to conduct a suitability analysis when recommending securities to investors that will take into account the investors’ knowledge and experience. The brokerage firm must make reasonable efforts to gather and analyze information about the customer’s other holdings, financial situation and needs, tax status, investment objectives and such other information that would enable the firm to make its suitability determination.
In addition to ensuring that securities are suitable for its customers on an individual level, FINRA Rule 2111 (NASD Rule 2310) also states that a securities must have reasonable grounds to believe that a recommendation to purchase, sell or exchange a security is suitable for the customer. This “reasonable-basis” suitability requirement means that in the context of private placements like the Bakken Income Fund, or any of the Bakken Drilling Funds, brokerage firms have a duty to conduct due diligence on:
-The issuer and its management;
-The business prospects of the issuer;
-The assets held by or to be acquired by the issuer;
-The claims being made; and
-The intended use of proceeds of the offering.
A securities broker-dealer that lacks essential information about an issuer or its securities when it makes a recommendation, including recommendations private placements like the Bakken Income Fund or Bakken Drilling Fund, must disclose this fact as well as the risks that arise from its lack of information. In addition, a brokerage firm “may not rely blindly upon the issuer for information concerning a company,” nor may it rely on the information provided by the issuer and its counsel in lieu of conducting its own reasonable investigation.
Bakken Income Fund Investors May Be Able to Pursue Recovery of their Losses through FINRA Arbitration
Fortunately for investors, they may be able to recover their investment losses in the Bakken Income Fund, Bakken Drilling Fund, or Coachman Energy through FINRA arbitration against the stockbroker or brokerage firm that recommended this investment to them.
If you are have suffered losses in Bakken Income Fund, Bakken Drilling Fund, or Coachman Energy, you may be able to recover your losses though FINRA arbitration. Please call Kons Law Offices at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your investment loss recovery options.
Kons Law Offices represents investors nationwide in securities arbitration and litigation matters. To learn more about the Firm’s securities litigation and FINRA arbitration practice, please visit www.investmentlossattorney.com.