On February 26, 2010, the Chapter 11 trustee for the Provident Royalties LLC, et al. bankruptcy matter submitted a proposed plan that would, among other things, ask investors to assign any rights they may have against third parties such as stockbrokers who made unsuitable recommendations to invest in securities offered by Provident Royalties and Provident Asset Management. The proposed liquidation plan asks investors to assign to the Liquidating Trustee all claims against third parties who may have committed acts which make them liable under contract, tort, general corporate or securities laws to the individual Investors. Individual holders who vote “yes” will automatically assign all of their claims. The proposed Liquidation Plan also contains an “Opt-Out Election” for investors who feel that they may be better off pursuing an individual claim rather than a group claim.
To further complicate this situation, brokerage firms Next Financial Group, Inc.; QA3 Financial Corp.; and Securities America, Inc. are already embroiled in a putative class action lawsuit for their role as selling agents in the Provident Energy and Shale Royalties securities offerings. Investors who choose to do so, can also opt out of the class action.
In other words, investors who purchased Provident Energy and Shale Royalties interests currently have three alternate ways to recover their losses from stockbrokers: (1) approve the pending Chapter 11 liquidation plan; (2) participate in the putative class action (assuming they were customers of the above class action defendants); or (3) opt out of both and pursue an independent securities arbitration claim. The first two options are still awaiting approval from the court. The third option, securities arbitration, is immediately available. Although every individual investor’s situation is different, opting out of a group claim may make more sense when the investor has a particularly meritorious claim or when there are additional unsuitable investments involved that are not covered by any of the group claims. Before making a decision, investors should explore each of these options with a great deal of care.