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FINRA has announced that two former Wells Fargo Advisors, based in California have been barred from the industry. Charles B. Lynch, Jr. and Charles H. Frieda, previously employed in Wells Fargo’s Irvine office, have consented to FINRA’s findings detailed in separate letters of acceptance waiver and consent (“AWCs”) dated December 11, 2017 (Nos. 2015045713301 and 2015045713302, respectively).
The AWCs indicate that Lynch entered the securities industry in 1999 and joined Wells Fargo in October 2012. Frieda, in the industry since 2008, joined Wells Fargo with Lynch.
From November 2012 until October 2015, FINRA found that the two brokers, who were apparently partners, made recommendations to more than 50 clients that resulted in the clients being over concentrated in energy sector equities, primarily four speculative stocks. News accounts of this matter identify two of those stocks as Magnum Hunter Resources (presently known as Blue Ridge Mountain Resources) and Halcon Resources Corp. These two companies both focus on exploration and drilling of natural gas. This is a process also known as “wildcat drilling” or drilling in an area with no history of prior production and unknown potential for oil and gas production. Needless to say, wildcat drilling can be a perilous and extremely risky investment for retail customers.
In some instances, clients’ accounts held positions in energy sector stocks connected to wildcat drilling that equaled or exceeded 50% of their net worth. FINRA determined that such positions reflected the failure of Lynch and Frieda to properly take into account their clients’ financial backgrounds, account objectives and overall investment profiles.
Moreover, when the volatile energy sector experienced a downtown in 2015, the two brokers urged their clients to maintain the strategy of substantial investments in the sector. This ultimately resulted in customers incurring millions of dollars in losses.
It also resulted in multiple customer complaints against the two brokers. Their BrokerCheck reports indicate that Lynch has 57 reported complaints, 56 since October 2014. As for Frieda, he has a total of 53 complaints, 52 since October 2014.
Wells Fargo has paid $8.5 million to date to settle these complaints.
Lynch left Wells Fargo in April 2016. Frieda left the firm August 2017. Both were not working in the industry prior to agreeing to FINRA’s bar.
Over concentration can occur in a single security, a single type of security or, as in these matters, a single sector of the economy. Over concentration an example of unsuitable trading.
If you have questions or concerns regarding particular investments in your account, or the handling of your account in general, contact Lubiner, Schmidt & Palumbo for a consultation. We are a firm of experienced securities arbitration attorneys. We represent brokerage firms, individual brokers and customers. We have successfully resolved hundreds of FINRA arbitrations, either by negotiating favorable settlements for clients or trying cases to conclusion. We can assist you in determining if you have been financially harmed and what you can do recover your losses.