Oil and Gas Investments - Risks Associated with Private Offerings

Private Oil and Gas Offerings - Boca Raton, Florida Private Placement (Offering) Investment Fraud and Misrepresentation Litigation and Arbitration Attorney:

Private Offerings - Private Placement of Securities for Oil and Gas Ventures:

All investing involves varying degrees of risk. Investing in private offerings or private placements, however, carries unique risks, and private oil and gas offerings have additional risks to consider.

If you are asked to invest in a private oil and gas offering, you should first consider and investigate who exactly is asking you to invest and think carefully about whether the investment is appropriate for you.

Is the person recommending the investment registered?

Most people offering you securities must be registered as a broker with the SEC and must be a member of the Financial Industry Regulatory Authority, or FINRA. You can find out if someone is registered and obtain information about a registered broker by visiting FINRA's BrokerCheck website or calling FINRA's BrokerCheck hotline at (800) 289-9999. If you are working with a registered investment adviser, you may be able to obtain information about the adviser by visiting the SEC's Investment Adviser Public Disclosure (IAPD) website. You can also check with your state securities regulator regarding the person soliciting your investment.

What if I'm not working with a registered broker or investment adviser?

If someone who is not registered solicits your investment, that person may be violating the law. One exception from broker registration is available to employees of the company offering the securities and who engage in strictly limited sales activities. If you aren't consulting a registered broker or adviser, you should consider doing so.  A registered broker or adviser that is familiar with the oil and gas industry and not connected to the offering can help you analyze the investment.  Most importantly, working with a registered broker or investment adviser affords you certain legal protections.

Even if you are working with a registered broker or adviser, it is not a seal of approval.  Oil and gas offerings present many investment risks, and working with a registered individual is not a guarantee that the offering is a sound investment.  Ask about any prior history of selling oil and gas offerings and if those offerings failed, the vetting or due diligence process for such offerings, and the risks of the particular investment you are considering.

Be particularly cautious if the broker or adviser has a relationship with the promoter of the venture, or otherwise has a personal stake in the transaction.  A promoter is the person promoting the offering and is usually the founder of the venture.  Ask about any current or prior relationship with the promoter, the extent of their business together, and any personal incentive in the offering.  These or similar questions should help alert you to any potential conflicts and biases that may exist in recommending the particular offering to you.

Ask for the "due diligence report."  A registered broker that recommends a private oil and gas offering must independently review the investment.  The broker may not just rely on the oil and gas promoter for information. Instead, the broker must check the statements and claims about the investment.  To know what due diligence your broker performed, ask for a copy of his "due diligence report."  This report should outline how the broker evaluated the venture's prospects and claims.  However, the broker's investigation is not infallible.

Consider whether the investment is appropriate for you.  Private securities offerings are generally limited by law to certain institutional and high net worth investors.  This limitation exists because of the greater risks involved in private offerings as compared to, for example, investing in publicly traded stock.  Private offerings-including private oil and gas offerings-may and usually do involve a high degree of risk.  You should be aware that you could lose your entire investment. Many private placement offering memorandums actually contain such a statement.  It is made for a reason.  These types of investment also typically have less liquidity, which means you might have to hold your investment indefinitely.

For further information concerning the risks of private oil and gas partnership investments and other relevant information, please follow the highlighted link.

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