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San Juan Basin Royalty Trust Securities Investigation

Have you suffered losses investing in San Juan Basin 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.

San Juan Basin Royalty Trust operates as an express trust. The company has a 75% net overriding royalty interest carved out of Burlingtons oil and gas leasehold interests (the underlying properties) in properties located in the San Juan Basin in northwestern New Mexico. The underlying properties consist of working interests, royalty interests, overriding royalty interests, and other contractual rights in 119,000 net producing acres in San Juan, Rio Arriba, and Sandoval Counties of northwestern New Mexico, as well as 1,154.8 net wells. Compass Bank serves as the trustee of the San Juan Basin Royalty Trust. The company was founded in 1980 and is based in Fort Worth, Texas.

A unit investment trust (UIT) is an exchange-traded mutual fund offering a fixed (unmanaged) portfolio of securities having a definite life.  The major distinguishing factor between a mutual fund and a UIT is that since it is unmanaged, the investments don’t change (i.e. you own a basket of investments that remain the same during the duration of the UIT).  (For a great article on the pros and cons of UITs visit http://www.wsj.com/articles/the-pros-and-cons-of-buying-unit-investment-trusts-1446433527)

By definition, oil and gas UITs are very similar to other UITs that invest in stocks or real estate. Each trust is broken down into individual units that are priced and sold to investors. Each unit represents an undivided proportional interest in all of the oil and gas properties held by the trust, and each trust has a set maturity date upon which all gains and losses from the sale of the assets are dispersed to the unit-holders.

Unlike stock unit trusts or real estate investment trusts (REITs), oil and gas UITs invest directly in either production or exploratory drilling oil and gas assets, then pass through the income and expenses realized from the actual production of oil and natural gas.

The main problem with UITs is that since they are unmanaged, if the market moves against the positions in the UIT you are stuck holding those positions until the end of the UITs duration (as opposed to a mutual fund where the money manager can make adjustments and dump underperforming investments).  This can be particularly troubling in very hard hit sectors like the oil and gas market over the last year to 18 months.

Many UITs focused on the oil and gas sector, like San Juan Basin Royalty Trust, have suffered enormous losses as the oil and gas sector has collapsed amid declining oil prices.

Another problem with UITs is their commission structure.  UITs are extremely high commission, often explaining the motivation of the sales agent in recommending the investments.

The White Law Group is investigating the liability brokerage firms may have for recommending UITs, like San Juan Basin Royalty Trust, that are focused on the oil and gas sector.  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.

If you suffered losses in San Juan Basin Royalty Trust or another oil and gas UIT and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 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 Franklin, Tennessee.  The firm represents investors in FINRA arbitration claims throughout the country.  For more information on the firm, visit https://whitesecuritieslaw.com.

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