The once-boisterous oil and gas sector has dramatically cooled, translating into multi-million dollar losses for investors improperly sold these risky products and leaving a flurry of frozen calls into FINRA's Senior Hotline to bemoan the widespread energy investments' drop in value.
Even though oil and gas has long been considered a risky investment, overzealous brokers and firms have nonetheless sold, marketed, and/or recommended energy to their clients, resulting in a recent trend of investors, including elderly/retired and even low risk-preference customers, putting a significant amount of money into oil and gas, only to lose much of their retirement and other savings when those very energy investments failed, for instance, when crude oil dropped below $50 a barrel earlier in 2016.
All of this led FINRA to conclude that, "yesterday's winner can be today's loser," when describing the oil and gas plunge of 2016.
One such risky and improper recommendation leading to litigation and alleged loss concerns Master Limited Partnerships (MLPs), which were touted by many industry firms, such as the Seadrill Partners LLC product that made its way onto former Wedbush Securities broker William Mark Heiden (Newport Beach, CA)'s list of energy stocks that FINRA found were over-concentrated in Wedbush customer accounts.
Because MLPs enjoy lower costs by passing tax obligations onto shareholders, they are able to offer higher yields, such as Atlas Pipeline Partner LP (APL)'s 9.45% yield, but this attractive feature also makes them risky in an energy downturn (for instance, due to decreased international demand), and susceptible to abuse such as overconcentration.
Other energy stocks implicated in FINRA's investigation of Heiden's overconcentration misconduct include Arch Coal, Clearbridge American Energy MLP, Energy XXI Bermuda Ltd, and Goldman Sachs MLP Energy, while additional MLPs and energy products such as Adageo Energy, Atwood Oceanics, Chesapeake Energy, Cobalt International Energy, Diamond Offshore, Ensco, Noble, Ocean Rig, RAAM Global Energy, and Rowan Companies have additionally seen dramatic financial downturns, if not outright bankruptcy.
Several oil and gas EFTs have additionally suffered dramatic losses, such as the First Trust ISE-Revere Natural Gas EFT (-37.74%, $134 million fund size), Market Vectors Junior Gold Miners EFT (-36.68%), and Global X Silver Miners EFT (-34.86%). Additional EFTs that have performed poorly appear here.
An August 2016 complaint filed against former Bay Mutual Financial (Santa Monica) and Financial Telesis, Inc. (Aliso Viejo, California) broker Christopher Basile Ariola accused the SoCal broker of making a series of unsuitable recommendations to elderly retirees by purportedly recommending that these customers invest a "substantial portion" of their limited retirement savings in in gold and energy stocks. FINRA's report alleged that as a result of these unsuitable recommendations, four clients lost a combined $140,000.
In April 2016, former Wells Fargo Advisors (Irvine, CA) representative Charles Bernard Lynch Jr and current Wells Fargo rep Charles Henry Frieda racked up a combined 31 disclosure events filed by customers and retirees accusing the duo of unsuitable over concentration of funds in speculative oil and gas holdings, including the recently-bankrupt Magnum Hunter Resources.
Since April, the pair has received a combined 40 additional customer complaints alleging unsuitability, over-allocation and concentration, and trading without consent in "highly risky" oil and energy companies and penny stocks. Many of the complaints referenced a "devastating loss" of principal with respect to retirement accounts and portfolios, with already-settled and granted damages totaling several millions of dollars.
Charles Frieda, who alone racked up 35 disclosures since 2014 that resulted in several millions of dollars in settlements (with 10 similar disputes still pending), is, as of November 1, 2016, still associated with Wells Fargo Advisors in Irvine.
In 2015, Citi predicted that MLPs would cut distributions due to a widespread energy profit plunge, calling the cuts "imminent."
At the time, high-yield oil and gas bonds including Seadrill Limited suspended its dividend all together, while others like Canadian Oil Sands cut its dividend by 50%, as EV Energy Partners, Vanguard Natural Resources, Breitburn Energy Partners, and Linn Energy all saw their shares drop by over 50% from July to 2014 to January 2015.
For its part, FINRA advised investors to avoid over concentration by diversifying portfolios, considering the suitability of such popular or trendy investments as oil and gas once was, incremental investing at regular intervals and for set amounts, and through research of statements, investment terms, and similar documents.
If you have invested in a risky oil and gas product or MLP that was unsuitably recommended to you or whose overconcentration in your account or portfolio has resulted in principal loss or other damages due to the excessive risk and volatility inherent in the oil and gas sector, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.