Torchlight Energy Resources

Kurta Law is investigating broker recommendations of Torchlight Energy Resources (NASDAQ: TRCH). These investments were high-risk and may have been unsuitable for many investors. Unsuitable investments violate FINRA Rule 2111, which requires brokers to consider their investor’s risk tolerance. Regulation Best Interest also requires brokers to exercise reasonable care and skill when they make recommendations.

If your broker recommended unsuitable investments, you may have a case for a securities lawyer. Call (877) 600-0098 or email info@kurtalawfir.com for a free case evaluation.

About Torchlight Energy Resources

According to the prospectus, Torchlight Energy Resources is an energy company focused on the acquisition, exploration, exploitation, and/or development of oil and natural gas properties in the United States. Their primary focus is purportedly early-stage projects.

The Offering

The prospectus dated January 14, 2020, announced that Torchlight Energy Resources would be offering 3,285,715 shares of common stock for $0.70 per share.

Penny stocks are always high-risk investments.

Risks Associated with Torchlight Energy Resources

The prospectus states, “Investing in our common stock involves a high degree of risk.” Brokers should have been aware of the following risks.

Immediate and Substantial Dilution

The public offering price of this common stock is substantially higher than the tangible book value per share. Upon purchase, investors would experience an immediate and substantial dilution in the value of their common stock.

Limited Operating History

The prospectus discloses that Torchlight Energy Resources has a limited operating history relative to larger companies in the industry. There are numerous risks associated with the risks, expenses, and difficulties encountered in establishing a business in the oil and natural gas industries.

Limited Capital

At the time of the offering, Torchlight Energy Resources had limited capital and stated that it would need to raise capital in the future. Without the necessary capital, the company might be forced to cease operations.

Substantial Doubt Over Ability to Continue as a Going Concern

Torchlight Energy Resources disclosed that it had a net loss of approximately $5.8 million for the year ending 2018 and had lost $3.8 million for the nine months ending September 30, 2019. As of September 2019, Torchlight Energy Resources had a deficit in aggregate of approximately $93.1 million.

The business was not generating sufficient cash flow to support continuing operations, and it expected to incur further losses.

An auditor indicated that certain factors raise substantial doubt about its ability to continue as a going concern.

Aegis Capital Corp. Underwriting  

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm.  

Kurta Law Can Help

Contact Kurta Law today for a free case evaluation – keep in mind that you have a limited time to file a claim. Our attorneys do not collect a fee unless we win your case. If you have any questions, call (877) 600-0098 or email info@kurtalawfirm.com.