Levin Law, P.A. Is Investigating Brokerage Firms That Recommended and Sold Master Limited Partnerships (MLPs) to Their Customers

The national securities law firm, Levin Law, P.A. (“Levin Law”) is investigating brokerage firms that recommended and sold Master Limited Partnership (“MLPs”) to their customers.  If your investment advisor, stockbroker or other financial professional recommended and sold any MLPs to you and you suffered significant losses, please contact us at (305) 402-9050 or contact@levinlawpa.com.  Recently, investors have suffered catastrophic losses from their MLP investments, particularly when their advisors have recommended that they place a significant percentage of their portfolio assets in MLPs.

What is a Master Limited Partnership?

The MLP is a hybrid legal structure that combines elements of a partnership with elements of a corporation.  An MLP issues units, which are like shares.  Such units are often traded on public stock exchanges, which provides liquidity to investors.  Unitholders are allocated a share of the MLP’s income, deductions, losses, and credits.

Master Limited Partnerships Are Complicated and Risky

MLPs are complex investment vehicles that are difficult for most retails investors to understand.

MLPs are required to derive 90% of their revenues from the natural resources industry or real estate that is subject to “qualified income.” Thus, the performance of MLPs is tied almost entirely to the energy and real estate sectors.  As such, MLPs are subject to the risks inherent in those sectors.  Like other energy and real estate investments, MLPs are subject to the change in market conditions of those sectors.  MLPs can be quite risky, but unfortunately many financial advisors inform their customers that the energy MLPs are “safe” or conservative.  When making recommendations to purchase securities, including MLPs, financial advisors have the duty to fully explain all materials risks of such investments.  Many financial advisors, however, fail to disclose the true risks inherent in MLPs, resulting in investors thinking that their MLP investments were “safe.”  Such investors were justifiably surprised when their so-called safe investments dropped significantly during the most recent market decline, resulting in part due to the spread of the COVID-19.

MLPs typically are leveraged instruments.  Thus, if interest rates increase or banks decrease their amount of lending, then MLP values may decrease.  Further, many advisors highlight only the higher yields generated from MLPs and do not fully and accurately disclose the true risks of MLPs.

Financial Professionals Received High Commissions From Selling MLPs

Financial institutions selling MLPs – such as broker-dealers, investment advisors, and banks – typically are compensated well for selling MLPs.  As a general matter, MLPs are expensive to the investor because of high commissions paid to the brokerage firm, high management fees, and other fees and compensation paid to the general partners and the selling broker-dealer.

MLPs are subject to interest rate risk.  Thus, if interest rates increase or banks decrease their amount of lending, then MLP values may decrease.  Further, many advisors highlight only the higher yields generated from MLPs and do not fully and accurately disclose the true risks of MLPs.

Many MLP and Energy Company Stock Prices Have Dropped Significantly During the Coronavirus Pandemic

During the rapid spread of COVID-19 and due to the decline in oil prices, many MLPs have dropped significantly in value.  Some of the MLPs and energy companies that have suffered meaningful declines are as follows, some dropping as much as 90% in share/unit price in the last few months.

• Clearbridge MLP and Midstream Fund (CEM)
• Cohen & Steers MLP Income and Energy Opportunity Fund (MIE)
• DCP Midstream Energy (DCP)
• Goldman Sachs MLP & Energy Renaissance Fund (GER)
• Goldman Sachs MLP Income Opportunities Fund (GMZ)
• Ferrellgas Partners, L.P. (FGP)
• Targa Resource Partners (NGLS-A)
• Tallgrass Energy LP (TGE)
• Shell Midstream Partners (SHLX)
• Plains All American Pipeline (PAA)
• NuStar Energy LP (NS)
• MPLX LP (MPLX)
• Dynagas LNG Partners LP (DLNG)
• Delek Logistics Partners, LP (DKL)
• CSI Compressco LP (CCLP)
• Crestwood Equity Partners LP (CEQP)
• CNX Midstream Partners LP
• Ciner Resources LP (CINR)
• Capital Product Partners L.P. (CPLP)
• Black Stone Minerals, L.P. (BSM)
• Talos Energy (TALO)
• Tortoise Energy (TYG)
• Magellan Midstream Partners (MMP)
• NGL Energy Partners (NGL)
• Rhino Resource Partners (RHNO)
• Viper Energy Partners (VNOM)
• Foresight Energy (FELPQ)
• MidCon Energy Partners (MCEP)
• Blueknight Energy (BKEP)
• Calumet Specialty Product Partners (CLMT)
• Cheniere Energy Partners (CQP)
• Enable Midstream Partners LP (ENBL)
• Enlink Midstream Partners LP (ENLK)
• Genesis Energy LP (GEL)
• Holly Energy Partners LP (HEP)