Master Limited Partnership Attorneys – MLP
What are master limited partnerships?
A master limited partnership (MLP) is a publicly traded partnership — typically organized as a limited partnership — whose units trade on a securities exchange. Most MLPs operate in the energy infrastructure sector: owning and operating pipelines, storage facilities, processing plants, and other midstream energy assets. MLPs pass through substantially all of their cash flows to unit holders as quarterly distributions, which are partially tax-deferred due to the partnership’s depreciation deductions.
The tax-advantaged distribution structure made MLPs extremely popular with income-seeking retail investors in the early 2000s through 2014. At their peak, MLPs offered distribution yields of 6-10% — far above conventional bond yields — and were marketed as stable, infrastructure-backed income investments with minimal commodity price exposure.
How MLPs were misrepresented to retail investors
- Commodity price exposure understatement: midstream MLPs were marketed as “toll road” businesses whose revenues were independent of commodity prices — because they charged fees for the use of infrastructure rather than buying and selling commodities. In practice, when energy prices collapsed, MLP customers reduced throughput volumes, renegotiated contracts at lower rates, or went bankrupt — directly impacting MLP revenues.
- Distribution sustainability misrepresentation: MLP distributions were frequently represented as sustainable and likely to grow — but many MLPs maintained distribution rates by borrowing or issuing new units, rather than by generating sufficient distributable cash flow. When energy market conditions deteriorated, distribution cuts and suspensions followed.
- Tax treatment complexity: MLP distributions are partially tax-deferred but create complex K-1 tax reporting obligations and result in taxable income upon sale of units (depreciation recapture). The tax implications of MLP ownership were frequently not adequately explained to retail investors.
- Overconcentration in energy sector: retail investors frequently were placed in portfolios heavily concentrated in MLPs — exposing them to catastrophic correlated losses when the entire energy sector declined simultaneously in 2014-2016 and 2020.
Frequently asked questions — MLPs
My MLP was described as a “toll road” with stable income — why did I lose money?
The toll road analogy was misleading. While midstream MLPs do charge fees for pipeline and storage use, those fees depend on the volume of energy flowing through the infrastructure — which declined when energy prices fell and energy companies reduced production. Additionally, many MLPs had significant direct commodity price exposure through their gathering and processing operations that was not disclosed as part of the toll road marketing.
My MLP cut its distribution — can I recover the lost income?
If the distribution cut resulted from the MLP being unsuitably recommended — because the distribution was never actually sustainable at the rate represented — you may have a claim. Bakhtiari & Harrison evaluates MLP claims including distribution cut damages at no charge.
Can I bring an MLP claim even if the units are still trading?
Yes. FINRA arbitration claims can be brought for unrealized losses as well as realized losses — you do not need to sell your MLP units before filing a claim. The damages analysis will address the difference between what the investment is worth and what it should have been worth in a suitable portfolio.
For a full overview of the firm’s investment product failure practice, visit the Product Failure page.
Contact a Master Limited Partnership attorney — free consultation
Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.
Investor cases are handled on a contingency fee basis — no recovery, no fee.
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