Many investor portfolios are still reeling from losses in the gas and energy sector after oil prices crashed in 2014. MLPs with expedition sites throughout the country suffered enormous proportional losses and investors who were heavily exposed to gas, oil, and energy securities saw their portfolios crater. Unfortunately, some brokers have failed to learn the hard lesson taught by the gas and energy MLP crash - they continue to sell retail investors high-risk private placement deals in this sector.
Adageo Energy Gas and Oil Private Placement
One recent company that brokers have smiled up is Adageo Energy, an independent gas and energy company that, like so many others, identifies, acquires, drill, develops, and operates oil and gas properties and natural gas pipelines.
A big reason brokers have taken a shine to Adaqeo recently is that the deal offers brokers very high commissions of approximately 10%. Compare that with the typical 1-2% brokers made on stock picks, and you can understand why Adageo has found its way into so many portfolios.
High Risk Unsuitable Private Placement Deals
The problem for investors - and for brokers caught inappropriately pushing Adageo to their clients - is that the Adageo private placement is an extremely high risk securities offering which is only suitable for a small number of investors. While it may be acceptable for some brokers to put their clients in a very small proportion of high risk investments for the sake of diversification, more commonly brokers "fall in love" with a product like this and go the opposite way: they overconcentrate the portfolio so that a lopsided portion of it is invested in all high risk deals.
FINRA's Suitability Rule and Broker Misconduct
This is, as you can imagine, a recipe for disaster when something like the crisis of 2014 hits, since many investors are unwittingly overexposed to the oil and gas price volatility. The good news is that the securities industry watchdog, FINRA, enforces regulation that protects investors against such high risk, unsuitable investments through its "Suitability Rule." So while brokers may get away with inappropriate recommendations of Adageo and other high risk gas and energy private placements, investors do have the right to bring a dispute against their financial advisors for misconduct.