New York Securities Lawyer Blog
In the months before the collapse of Lehman Brothers many brokerage firms were recommending the purchase of Main Street Natural Gas Bonds. It appears that many investors were sold these Bonds as equivalents to or replacements for Municipal Bonds. We believe that at least some brokerage firms were misrepresenting the Main Street Natural Gas Bond as being as safe and conservative as a Municipal Bond, when in reality they were linked to the credit of Lehman Brothers, a financial institution which by that time was in a precarious position, certainly worse off than almost all municipal bond issuers. In fact by 2008 the risk of investing in a Lehman backed investment had been steadily increasing and this risk should have specifically been disclosed. Main Street Natural Gas and various investment banks, including Lehman Brothers, entered into arrangements whereby Main Street Natural Gas would borrow money at low, tax-exempt interest rates and then give the money to the investment banks(Lehman) to invest for profit, and in return, supply natural gas at a below-market price. In November 2006, the Municipal Gas Authority of Georgia set up Main Street Natural Gas as a non-profit corporation, which borrowed money to buy natural-gas derivatives all guaranteed by Lehman Brothers. Natural gas derivatives are complex financial instruments which can be extremely risky and often times are completely unsuitable for a portfolio that is predominantly invested in municipal bonds. In April 2008, Main Street Natural Gas borrowed $700 billion and essentially gave it to Lehman Brothers. In return, Lehman Brothers arranged for the delivery of 160 billion cubic feet of natural gas over 30 years at a below market price. The $700 billion Main Street Gas gave to Lehman came from the Main Street Gas Inv. Gas Project Bonds, Series 2008A. This esoteric investment was completely subject to the rising risk of Lehman Brothers’ default – a risk its seems was either never mentioned or explained to the broker-dealers’ customers. Our firm is currently investigating potential claims against brokerage firms that sold the Main Street Natural Gas Bonds. If you invested in Main Street Natural Gas Bonds, please contact Lax & Neville LLP for a free consultation.