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Robert W Pearce
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Mr. Pearce has tried, arbitrated and mediated numerous disputes involving complex securities, commodities, administrative, contract, commercial, business tort and employment law issues for over 35 years. He has represented hundreds of clients in Federal and state courts (trial and appellate) as... More
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The Law Offices of Robert Wayne Pearce, P.A.
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The Investor's Rights Law Blog
    Sep 25, 2013 12:45 PM

    Janice Louise Hallett, a broker with Schertz, Texas based The Tidal Group, submitted a letter of acceptance, waiver, and consent in which Ms. Hallett consented to sanctions and to the entry of Financial Industry Regulatory Authority (FINRA) findings that she offered and sold oil and gas interests to her firm's customers that were securities offerings issued by the firm's affiliate. While discussing the offerings, Ms. Hallett negligently made inaccurate statements to several investors relating to the returns they could expect from the investment and the affiliate's track record. FINRA's findings also stated that Hallett negligently advised some investors considering purchasing interests in an offering that they could expect a return of their principal investment in one to three years. Since oil and gas investments are considered speculative in nature, such returns are not probable. Ms. Hallett, of Cibolo, Texas, was fined $10,000 and suspended from association with any FINRA member in any capacity for 20 business days - the suspension was in effect from January 7, 2013 through February 4, 2013.

    Oil and gas investments vary in form, which can include limited partnerships, ownership of fractional undivided interests in leases, and general partnerships. Tax consequences and investor liability, depending on the type investment program, can vary as well. In a general partnership, investors actively participate in the operations of the venture, and they are personally liable for partnership debts. In a drilling limited partnership, an oil or gas company sells partnership units to investors and uses the money it raises to lease property and drill wells. In return for managing the project, the sponsor company usually takes an upfront fee that averages about 15% of one's investment (commonly referred to as tangible and intangible drilling costs) and also shares in a percentage of any revenue generated. In return, the promoter offers the investor the prospect of a substantial first year tax write-off and quarterly cash distributions from the sale of any oil and gas the partnership finds until the wells run dry. Drilling partnerships have always been a gamble, but recently, they have proven somewhat riskier than usual. This type of investment is very speculative, is a highly illiquid investment, and can have a long holding period.

    In addition, FINRA found that while selling interests in an oil and gas venture, Ms. Hallett negligently advised a customer that the firm's affiliate had drilled "24 straight successful wells" in a particular area. In fact, the affiliate had drilled at least one dry hole in the area and drilled other wells in the area that yielded very limited gas or oil production.

    Broker-dealers must establish and implement a reasonable supervisory system to protect customers from broker misconduct. If broker-dealers do not establish and implement a reasonable supervisory system, they may be liable to investors for damages flowing from the misconduct. Therefore, investors who have suffered damages due to Ms. Hallett's misrepresentations can bring forth claims to recover losses against The Tidal Group, which should have prevented Ms. Hallett from committing the described negligent activity.

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.

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