Former Wells Fargo Brokers Barred for Recommending Risky Over-Concentration in Oil & Gas Investments

The Financial Industry Regulatory Authority (“FINRA”) has barred former Wells Fargo (CRD# 126292) financial advisors Charles Henry Frieda (CRD# 5502319) and Charles B. Lynch, Jr. (CRD# 3004877) for allegedly engaging in a pattern and practice of recommending an unsuitable over-concentration in energy-sector securities to numerous customers. On April 12, 2016, Mr. Lynch was discharged by Wells Fargo for “loss of management confidence,” as reported on Wells’ Form U-5 filing with regulators. His partner, Mr. Frieda, remained at Wells until September 2017.

Pursuant to FINRA Rule 9216, on November 27, 2017, both Messrs. Lynch and Frieda submitted a Letter of Acceptance, Waiver and Consent (“AWC”) for the purposes of proposing a settlement to certain alleged industry rule violations. Specifically, it was alleged by FINRA Enforcement in the AWC that “From November 2012 to October 2015” both former Wells Fargo advisors “[r]ecommended an investment strategy that was unsuitable for certain retail customers” and purportedly involved the brokers recommending “[a]n over-concentration in energy-sector securities, some of which were speculative, resulting in significant customer losses.”

As part of the AWC, FINRA Enforcement alleged that Messrs. Lynch and Frieda violated FINRA Rule 2111. In relevant part, Rule 2111 – the so-called suitability rule – mandates that a broker “must have a reasonable basis to believe that a recommended… investment strategy involving a security or securities is suitable for the customer, based on the information obtained through reasonable due diligence….”

FINRA Enforcement alleged that Messrs. Lynch and Frieda had recommended an investment strategy to more than 50 customers, comprising the majority of their clientele, which purportedly caused numerous client accounts to become over-concentrated in a single sector. FINRA further charged that this over-concentration “[p]rimarily involved four speculative equity securities within the energy sector.”

During the above-referenced time period, FINRA Enforcement alleged that Messrs. Lynch and Frieda purportedly “[f]ailed to properly consider and failed to obtain accurate customer investment profile information to determine the suitability of [the investment strategy] and the securities… recommended as part of that strategy.” Under the terms of the AWC, Messrs. Lynch and Frieda will be permanently barred from associating with any FINRA member firm in any capacity.

Based on review of publicly available information through FINRA, a sizeable number of customer complaints have been filed against Messrs. Lynch and Frieda, often also naming Wells Fargo for their purported failure to supervise the activities of their former financial advisors. Specifically, a total of 56 customer disputes have been brought against Mr. Lynch, of which 52 settled, and 3 remain pending. Many of these disputes center on allegations of “[u]nsuitable and over-concentrated investment recommendations in the energy sector” and “[i]nappropriate investments for a conservative, low-risk portfolio and that FA ignored requests to sell energy positions.”

With regard to Mr. Frieda, he has been the subject of 52 customer disputes, of which 49 have settled and 2 remain pending. Many of these customer disputes presumably emanate from Mr. Frieda’s dealings with Mr. Lynch and, likewise, primarily involve allegations that customers were “[h]eavily invested in an unsuitable amount of energy stocks…”

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors in energy investments, including oil and gas private placements, drilling funds, and other energy-related investment products. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.