Recovery of Investment Losses – Hugoton Royalty Trust

Have you suffered losses investing in Hugoton Royalty Trust?  If so, the securities attorneys of The White Law Group may be able to help you recover your losses in a FINRA arbitration claim against the brokerage firm that recommended the investment. 

Hugoton Royalty Trust was created on December 1, 1998 when XTO Energy Inc. conveyed 80% net profits interests in certain predominantly gas-producing properties located in Kansas, Oklahoma and Wyoming to the trust, according to its website. The net profits interests are the only assets of the trust, other than cash held for trust expenses and for distribution to unitholders. 

Royalty Income Trusts (royalty trusts) are pass through entities, similar to real estate investment trusts (REITs) or master limited partnerships (MLPs), whose units (shares) are sold on various stock exchanges. Royalty trusts are a depleting asset, meaning they can’t add new royalty interests or issue new shares or they will have to reorganize as a limited partnership (LP).   

Royalty Trusts are high risk investments and not suitable for all investors. Unlike REITs or MLPs, the cash flow generated by oil and gas royalty trusts is highly volatile and completely dependent on the up and down surges of oil and gas prices. 
 
The dividend payments backing a royalty trust’s high yield are extremely volatile from quarter to quarter. Unfortunately, these variable payments mean that investors can’t predict how much income they will receive from a royalty trust.  

Royalty trusts, such as Hugoton Royalty Trust, are required to distribute a certain level of profits to unit holders as distributions which allows them to avoid paying federal income tax.  

These distributions are like a loan repayment: part of the payment is interest and a portion of the payment will be a return of principal, until the mineral drops below a threshold amount defined initially in its prospectus. This can be misleading for investors, who may believe the payment is just interest.  

Another risk, according to Investopedia, is that royalty trust unitholders deal strictly with the banks, not the energy companies, meaning they have no say in operational decisions.  

Potential Lawsuits to Recover Investment Losses 

The White Law Group is investigating the liability brokerage firms may have for recommending royalty trusts, like Hugoton Royalty Trust.  Brokerage firms are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor in light of that particular investor’s age, investment experience, net worth, investment objectives, and income.  Firms that fail to perform adequate due diligence or that make unsuitable recommendations can be held responsible for investment losses in a FINRA arbitration claim.  

See also: Permian Basin Royalty Trust (PBT) Securities Investigation 

If you suffered losses in Hugoton Royalty Trust or another oil and gas royalty trust and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.  

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.  The firm represents investors in FINRA arbitration claims throughout the country.  For more information on the firm, visit http://whitesecuritieslaw.com.