• November 8, 2023
• Regulus Advisors
• Vanderbilt Securities

In March 2019, the Wolper Law Firm, P.A., a national securities litigation law firm, filed an arbitration claim Regulus Advisors, LLC, Vanderbilt Securities, LLC and Kurt Berry before the Financial Industry Regulatory Authority (FINRA).  The arbitration relates to alleged sales practice misconduct allegedly committed by Kurt Berry when he recommended that retail securities clients invest in securities offered by Resolute Capital Partners, LLC, Homebound Resources, LLC and PetroRock Mineral Holdings, LLC, and include the following individual investments.  These investments are commonly referred to as “PetroRock.”

What is PetroRock?

The PetroRock Investments were energy sector investments that focused on the purported acquisition of land leases for oil and gas exploration and other business ventures within the energy sector.  The issuers paid registered and unregistered salespersons to pedal these securities to retail investors in exchange for the payment of high commissions up to a staggering 11.5%.  Investors were promised fixed rates of return between 8%-12% with very low risk and no correlation to the stock market.

The PetroRock investments turned out to be a fraud on many levels.  In September 2021, the Securities and Exchange Commission (‘SEC”) initiated an enforcement action against the issuers for violation of the Securities Act of 1933, Securities Exchange Act of 1934 and Investment Advisers Act of 1940.

According to the SEC’s findings, the PetroRock entities and salespeople acting on their behalf, sold more than $250 million of debt and equity securities in unregistered offerings, based on working interests in oil and gas wells, to retail investors, like Claimants. The SEC asserted that the issuers engaged in securities fraud and failed to properly register the PetroRock investments.  In addition, the SEC alleged that issuers of PetroRock insufficiently supported projections of oil production, cash reserves and made incomplete disclosures regarding potential uses of investor funds, including the amount of funds that would be used for payments to prior debt and equity investors. The issuers also made material misrepresentations in offering materials, “one-pagers” used for marketing the PetroRock investments and in marketing materials.  These representations were, in turn, parroted by investment professionals like Respondents, who failed to conduct any due diligence on the PetroRock Investments before or after recommending them. The matter was settled by the issuers, who agreed to the entry of a cease-and-desist order and are prohibited from disputing the factual findings contained therein.

What Due Diligence Requirements Exist for Private Placements

FINRA Regulatory Notice 10-22 is instructive regarding the depth of due diligence required when recommended private placements to retail securities investors on the broker-dealer side, which is a lower standard of care than the RIA side of the business.  FINRA Regulatory Notice 10-22 “reminds broker-dealers of their obligation to conduct a reasonable investigation of the issuer and the securities they recommended in offerings.”  “A BD ‘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…firms are required to exercise a ‘high degree of care’ in investigating and independently verifying an issuer’s representations and claims.”  FINRA NTM 10-22 requires that “broker-dealers…conduct a reasonable investigation of the issuer and the securities they recommend…”

It has been alleged in the arbitration that Kurt Berry, Regulus and Vanderbilt sold the PetroRock investments to retail clients in violation of the law and without conducting any due diligence.  Had appropriate due diligence been conducted, it would have been discovered that these offerings were fraudulent and that they required proper registration.

Kurt Berry (CRD #4550773) has been in the financial services industry since 2002 and has worked for a variety of different brokerage firms and investment advisory firms.  Kurt Berry worked for Edward Jones from 2002-2005, Pruco Securities from 2003-2005, MML Investors Services from 2005-2011, ON Equity Sales Co. from 2011-2016, Regulus Advisors, LLC from 2016-2019 and Vanderbilt Securities from 2019-2022.  Kurt Berry is currently employed as a Registered Investment Advisor Representative with First Advisors National, LLC.

We Help Investors Recover Investment Losses

Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients.  To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities.  Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters.  We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com.