Former Wells Fargo Brokers Charles Frieda and Charles Lynch Energy Sector Losses
Posted on Wednesday, July 10th, 2019 at 7:02 am
Did you suffer losses due to investments with Former Wells Fargo brokers Charles Frieda (CRD# 5502319) and Charles Lynch (CRD# 3004877)? The duo is accused of over-concentrating securities in the speculative and high-risk energy-sector in their customer account. Frieda and Lynch were partners in business at Wells Fargo.
In August 2020, FINRA fined Wells Fargo $350,000, censured the brokerage firm, and ordered the firm to pay $201,498 plus interest in restitution to affected customers for failing to supervise Freida and Lynch. According to FINRA, Freida and Lynch recommended that many of their customers invest a substantial portion of their assets at Wells Fargo in four high-risk energy securities, including one low-priced security, between November 2012 and October 2015. According to the Acceptance, Waiver & Consent, “The representatives’ conduct generated multiple red flags regarding overconcentration in their customers’ account that raised suitability concerns that Wells Fargo failed to reasonably investigate.
“Frieda and Lynch exacerbated risk of investing in these securities by recommending that customers purchase shares of other energy securities. In many instances, their customers’ investments in energy-sector securities exceeded 50% of their liquid net worth. Because of Frieda and Lynch’s recommendations, 70 of their customers lost a total of more than $10 million when prices of energy securities prices plummeted in 2014 and 2015. Wells Fargo compensated 67 Frieda and Lynch customers more than $9.7 million based on losses related to these four securities. Three customers were not compensated, and the firm will provide restitution to them pursuant to this AWC” according to the AWC.
Furthermore, the AWC alleges that Wells Fargo “had multiple red flags about overconcentration in Frieda and Lynch’s customers’ accounts that raised suitability concerns. Yet, Wells Fargo failed to reasonably investigate certain of these red flags. Between September 2013 and April 2014, the firm’s trade-review system issued 28 alerts that four customers of the representatives were concentrated in the same low-priced, energy security. The alerts noted concentration levels ranging between 35.18% and 86.95% for these accounts, which was above the firm’s threshold for triggering a security concentration alert.”
In December 2017, Frieda and Lynch consented to the FINRA sanction and to the entry of findings that they recommended “an investment strategy that was unsuitable for certain retail customers by recommending an over-concentration in energy-sector securities, some of which were speculative, resulting in significant customer losses. The findings stated that due to the speculative nature of the recommended securities, the volatility of the energy market, and the high level of concentration, this strategy exposed customers to significant potential losses.” FINRA found that Frieda and Lynch failed to properly consider and failed to obtain accurate customer investment profile information to determine the suitability of his over-concentration strategy and the securities they recommended as part of that strategy. By following Frieda and Lynch’s recommendations, the customers suffered millions of dollars in aggregate losses.
In November 2017, FINRA barred Frieda and Lynch for an investment strategy concentrated in the energy sector. According to FINRA November 2012 and October 2015, Frieda and Lynch Frieda and Lynch together recommended an investment strategy that involved four speculative energy stocks to the majority of their customers (more than 50), which resulted in significant losses between.
This strategy exposed their clients to significant potential losses, given the nature of the securities, volatility of the energy sector, and high level of concentration in customer accounts. Additionally, FINRA alleged that Frieda and Lynch failed to consider the suitability of their clients for these investments, and did not take into consideration each customer’s individual investment experience, risk tolerance, investment time horizon, net worth, liquidity needs, and income. Frieda and Lynch also did not properly assess the significant potential risks associated with his recommended strategy for each of these customers, which was compounded by concentration exceeding 50% in the energy sector.
Over the past few years, oil prices have significantly declined. A supply glut in 2014 and 2015 led to some of the lowest prices the market has seen in recent years. In turn, securities values also dropped. The volatile energy sector experienced significant turmoil, and many energy companies were negatively impacted when global crude oil prices fell below $40 per barrel at the end of 2015. This was the lowest level since early 2009, as supply was in excess of global demand. Oil and gas companies experienced a spike in bankruptcies, which have left many investors reeling.
It is alleged that Frieda and Lynch recommended oil-and-gas exploration companies, including Magnum Hunter Resources and Halcon Resources Corp. Magnum Hunter Resources was delisted from the New York Stock Exchange in November 2015 after falling to 15 cents after a high of $9 two years earlier, and it later declared bankruptcy in December 2015. Halcon Resources Corp. dropped to 98 centers in April 2016 after a high of $35 in June 2014.
Frieda was terminated by Wells Fargo this past August. Lynch was terminated in April 2016. Neither is currently employed in the securities business.
Frieda was registered with Wells Fargo Clearing Services, LLC in Irvine, California from October 2012 until September 2017. Frieda has been the subject of 59 customer complaints between 2012 and 2018, one of which was withdrawn, according to his CRD report. Fifty-eight of the customer complaints have been settled, most having to do with unsuitable and over-concentrated investments in the high risk energy sector, with settlements including $850,000, $750,000, and $575,000. Some recent complaints include:
July 2018. “Client alleged his financial advisor recommended energy investments not in line with his investment goals and risk tolerance. (4/24/2014-4/30/2016).” The customer sought $283,363.60 in damages and the case was settled for $153,000.
March 2018. “Claimants allege that from 2012 through 2018, FA purchased unsuitable securities.” The case was settled for $100,000.
August 2017. “Clients allege inappropriate investments for a conservative, low-risk portfolio. (5/20/2013-8/22/2017).” The case was settled for $110,000.
Lynch was registered with Wells Fargo Advisors, LLC in Irvine, California from October 2012 until May 2016, after he was terminated for “loss of management confidence.” Lynch has been the subject of 60 customer complaints between 2012 and 2018, one of which was withdrawn, according to his CRD report. Most of the settled customer complaints were regarding over-concentrated and unsuitable investments in the high-risk energy sector.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Wells Fargo Cleaning Service, LLC may be liable for investment or other losses suffered by Frieda and Lynch’s customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.