Ludlow, MA Commonwealth Financial Broker Subject of Two Pending Customer Disputes

According to FINRA BrokerCheck, dually registered stockbroker and investment adviser Joseph Leonczyk (Leonczyk, CRD# 2911492) has been named or otherwise involved in two pending customer disputes concerning a recommendation to invest in FS Energy and Power Fund, in addition to other non-traded investment vehicles. The first matter, an arbitration filed on September 4, 2020, and seeking damages of $100,000, alleges that recommendations to invest in “FS Energy and Power and FS KKR were unsuitable.” The second pending customer dispute, an arbitration filed on September 10, 2020, and seeking damages of $65,000, alleges that “purchases of FS Energy and Industrial REIT were unsuitable.”

Mr. Leonczyk is a longtime securities industry professional with more than two decades of experience. Since 2002, he has been affiliated with the independent broker-dealer Commonwealth Financial Network, headquartered in Waltham, MA. Mr. Leonczyk conducts business under his own shingle—through Pioneer Valley Financial Group—with offices in Ludlow and West Springfield, MA.

Investors in FS Energy and Power Fund (FSEP, or the Company) may have claims to recover their losses through FINRA arbitration, provided the investment recommendation lacked a reasonable basis, or if the investor was otherwise misled into purchasing shares. Formed as a Delaware statutory trust in September 2010, FSEP is a publicly registered, non-traded business development company (BDC). As such, FSEP was sold nationwide to numerous retail investors.

FSEP’s “investment objective is to generate current income and long-term capital appreciation by investing primarily in privately-held U.S. companies in the energy and power industry.” In fact, FSEP’s investment policy is to invest “at least 80% of its total assets” in securities of energy companies. Therefore, in addition to those risks as a non-traded BDC—including characteristic high fees and illiquidity—FSEP also presents significant commodity volatility risk associated with investing in the energy sector.

Unfortunately, in some instances, investors who acquired their FSEP shares at the offering price of $10 per share may not have been adequately informed of the investment’s many risks. Investors should understand that an investment in a non-traded BDC like FSEP usually entails hefty up-front fees (as high as 10% in some cases) to the soliciting stockbroker and his or her firm, as well significant liquidity issues. In fact, FINRA has issued the following cautionary guidance: “Due to the illiquid nature of non-traded BDC’s, investors’ exit opportunities may be limited to only periodic share repurchase by the BDC at high discounts.”

For the quarter ending September 30, 2020, FSEP has reported a net asset value of $3.28 per share. Regardless of that pricing, investors seeking immediate liquidity have only limited options, including attempting to sell their shares at a significant discount through a secondary market. As of April 2020, one secondary market had FSEP shares selling for approximately $1.50 per share.

The attorneys at Giarrusso Law Group LLC have considerable experience with complex non-traded investments, including REITs and business development companies (BDCs). Investors may pursue a claim to recover their losses through FINRA arbitration, or in some instances, litigation. Investors who wish to discuss a possible claim may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.