The collapse in oil prices has hit hard investment strategies focused on the oil and energy sector for many investors, both retail and high net worth, accredited investors. Accredited investors qualify to invest in BlackGold Opportunity Fund, LP through meeting minimum net worth and stated income requirements specified by the SEC Rule 506, Regulation D. BlackGold Opportunity Fund, LP raised capital through the use of offering documents known as Private Placement Memorandums (PPM). According to securities industry rules, accredited investor are deemed able to understand and assume risks of investments in BlackGold Opportunity Fund, LP. However, when an investment advisory firm recommends hedge fund investments in BlackGold Opportunity Fund, LP, are there any duties and obligations owed to clients?
BlackGold Opportunity Fund LP is a credit-oriented hedge fund which invests in securities issued by energy companies across the credit spectrum including bank debt, unsecured debt, bonds, convertible debt, preferred stock. BlackGold GP LP, as investment adviser is entitled to a performance-based management fee and a management fee. Both performance-based and management fees are fully discussed in the PPM. The following investment advisory firms received compensation for investments made in BlackGold Opportunity Fund LP:
- Avalon Wealth Management, LLC
- Credit Suisse (USA), LLC
- Eaton Partners, LLC
Do accredited investors have any legal recourse to recover investment losses given the information and risk disclosures contained in Private Placements Memorandum (PPM) Offering documents?
There are two fiduciary investment advisors involved in the transaction at issue; the hedge fund manager and the investment advisory firm that recommended the transaction and amount invested. Investment advisory firms have a fiduciary duty to perform competent and unbiased investment advisory services including due diligence review, suitability determinations and performance evaluations for its investment recommendations. Accredited investors are reasonable to rely upon representations made by investment advisory firms. Investment advisory firms are not exempt from performing suitability determinations for customers who are accredited investors.
According to the Financial Industry Regulatory Authority (FINRA) rules, suitability determinations are a two step process; first, a reasonable investigation of the private placement’s investment merits must be determined and understood by investment advisors, and second, a “customer specific suitability” determination must be made. After a customer is qualified as an accredited investor, investment advisory firms are required to make a suitability determination taking into consideration a customer’s personal situation.
FINRA securities arbitration claims for damages in BlackGold Opportunity Fund, LP may arise from violations of sales practice rules and regulations. FINRA rule violations may include concentrated investments in hedge funds caused by misrepresentations or omissions of material facts that are motivated by investment advisor conflicts of interest. The FINRA Dispute Resolution Process is designed resolve customers disputes with member firms concerning investment losses that are the result of sales practice violations.
Klayman & Toskes, P.A. is dedicated to the protection of BlackGold Opportunity Fund investor rights concerning investment advisory firm violations of securities industry rules and regulations.