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Articles Tagged with Franklin Square Energy & Power Fund

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Investors in Franklin Square Energy and Power Fund (“FSEP”) may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

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FSEP was launched in July 2011 as a closed-end management investment company that operates as a business development company, or BDC. FSEP invests in energy and power companies, including natural gas, natural gas liquids, crude oil, coal, and other types of power. FSEP closed to new investors in November 2016.

Investors who purchased shares in FSEP through the offering acquired shares at $10.00 per share, but according to its sponsor FESP had an estimated net asset value (“NAV”) of $3.32 per share as of September 20, 2020. . Even worse, shares on the limited secondary market have reportedly traded at lower prices of between $1.10 and $1.27 per share.

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As we highlighted in a previous blog post, investors in FS Energy and Power Fund (“FSEP” or the “Fund”) may be able to recover losses on their investment in arbitration through arbitration before the Financial Industry Regulatory Authority (“FINRA”), if the recommendation to invest in FSEP was unsuitable, or if the broker or financial advisor who recommended the investment made a misleading sales presentation.  Headquartered in Philadelphia, PA, the Fund is structured as a non-traded business development company (“BDC”) that invests primarily in the debt of a portfolio of private U.S. energy and power companies.

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BDCs first emerged in the early 1980’s when the U.S. Congress enacted legislation that amended the federal securities laws.  These legislative changes allowed BDCs — which are a type of closed-end fund — to make investments in developing companies and firms.  BDCs are in the business of providing various debt and mezzanine financing solutions for small and medium-sized businesses that otherwise could not access credit in the same way as more established companies.

By providing credit solutions to less established companies, BDCs frequently collect much higher than average interest income and seek to pass along such income to investors in the form of dividends.  While an investment in a BDC may seem like an attractive option for an investor seeking enhanced income, our office has frequently encountered situations in which financial advisors recommended unsuitable nonconventional investment products to their clients, including non-traded BDCs, such as FSEP.

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