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Risky, Unsuitable Investments in Poorly Performing Energy, Oil and Gas Ventures May Lead to FINRA Claims

Investors who lost money in oil and gas investments gone awry may be contemplating—or be wise to start preparing—complaints and arbitration claims with FINRA, according to a new Investment News report that has caught onto a recent trend of investors, including retirees and still-working elderly clients, who lost significant portions of their retirement savings by investing large amounts in an energy industry that has seen crude oil drop below $50 a barrel, only recently rebounding to the $40 mark.

The low oil and gas prices—down over 60% since 2014—are a mere symptom of an energy problem that is set to see sector-wide high-yield default rates rise to about 20% in 2016 from just 7% at the end of 2015 and 1% in December 2014. Fitch Ratings estimates that default rates among exploration and production companies may spike to as high as 35% by the end of 2016.

When a broker or firm fails to adequately disclose risks involved in proprietary energy, such as the increasing default rates, the investor may be placed in a harmful position of not fully understanding that exchange-traded notes, funds and other security products tied to energy "come with very enormous risk," according to the Investment News report.

The stories of investors—especially older ones—with the most viable claims are similar: quite often, such a client is looking to coast or even live off of investments, including investments in an energy field traditionally marketed as lucrative. The customer opens a discretionary account with a broker, who in turn invests much of the client's funds in energy, oil and gas ventures, such as Linn Energy, Americas Partners, and British Petroleum, to name a few.

Linn Energy, by the way, is one energy sector company that already has informed the SEC that filing for Chapter 11 bankruptcy may be "unavoidable."

Sometimes, due to the discretionary nature of an account, brokers may cash in 401(k)s or other portfolio components to help pay for fees, margin loans, calls, and other expenses related to the energy investment; sometimes, the concentration of investments in "high-yield" energy gets to such a significant level as to make financial recovery from an energy sector meltdown quite difficult.

Several clients have already complained that their brokers over-concentrated such an investment portfolio in energy, which in turn caused damages when the price of oil and production plummeted: One client claims over 90% of his account was concentrated in oil and gas, meaning the financial loss from the crumbling industry was devastating: "There's no way I'll ever be able to retire."

Many firms have diversification policies in place that, for instance, prohibit brokers and advisers from steering or allowing a client's concentration level in any one security or area to exceed a certain percentage. Other times, firm or industry policies may prohibit acceptance of certain accounts as discretionary, or dictate standards of suitability that brokers' actions may not adhere to.

If you have invested with a broker, financial adviser, or firm with energy or oil-and-gas stocks, notes, funds, proprietary structured products or speculative products without adequately disclosing the risks of doing so, or who has overconcentrated your investments or abused an account's discretionary privilege through payment for excessive or unnecessary fees and expenses in a potentially unsuitable product, and such misconduct has proven harmful to your financial position or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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