Investors in the Spirit of America Energy Fund (NASDAQ: SOAEX) (SOAEX or Energy Fund), a proprietary mutual fund offered by David Lerner Associates, Inc. (David Lerner), may be able to recover their losses if the recommendation to invest by a financial advisor lacked a reasonable basis, or in the event that the investment was sold pursuant to a misleading sales presentation. As we have previously discussed, investors in the Energy Fund may be able to recover their losses through securities arbitration before FINRA, or in some instances, through litigation.

SOAEX is one of six proprietary mutual funds offered and managed by the Spirit of America Investment Fund, Inc., which in turn is directly affiliated with David Lerner. The Energy Fund first launched in 2014, with a focus on “investing at least 80% of its assets in energy and energy related companies.” According to the SOAEX semi-annual report dated May 31, 2020, a majority of the Energy Fund’s investment holdings are in energy-related master limited partnerships (MLPs) including costly and risky upstream exploration and production (E&P) companies. This concentration in energy-related investments subjects SOAEX to the volatility of the oil and gas sector, as demonstrated by the Energy Fund’s year-to-date return of approximately -40% and approximately -85% investment return since its inception (exclusive of any distributions received). SOAEX’s current share price of $11.15 as of this writing reflects a 1-for-3 reverse stock split in 2018 and is thus approximately trading for $3.72 per share on a split-adjusted basis.

SOAEX’s concentration in energy-related assets exposes it to intense volatility as seen in the wake of the COVID-19 pandemic and resulting decline in travel. However, the fact is that even before COVID-19, oil and gas E&P operations were facing economic headwinds, requiring break-even prices of $50-60 per barrel in some instances due to significant costs. With oil prices now hovering around $40 per barrel or lower, many E&P and associated companies have come under severe financial distress. Likewise, oil refiners have suffered lower demand for transportation fuels, and the extent to which this downturn in demand and pricing will last is currently unknown.

Because of the volatility of oil and gas investments, these products are not suitable for all investors, particularly when investors become concentrated to any significant degree in energy investments. When a financial advisor recommends an oil and gas investment to a customer, the advisor should first seek to inform the client of the risks associated with investing in the volatile oil and gas market. In addition, the advisor has a legal duty to conduct a suitability analysis under FINRA Rule 2111 (Suitability) to determine if the investment is suitable in light of the client’s profile and stated objectives. In instances where a financial advisor fails to disclose the risks associated with an investment or investment strategy, or if an investor’s account becomes overconcentrated in oil and gas investments, then the advisor and potentially the brokerage firm may be held liable for losses sustained.

The attorneys at Giarrusso Law Group LLC possess considerable experience in successfully representing aggrieved investors in oil and gas investments. In many instances, investors may pursue claims to recover losses through securities arbitration before FINRA. Investors who which to discuss a possible claim related to an oil and gas investment are invited to contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost and no-obligation consultation.