The FS Energy & Power Fund is a non-traded business development company sponsored by FS Investments. The Fund purportedly returned in excess of 14%, which made it particularly appealing to investment sales persons.
As the US Securities & Exchange Commission, in its approval of the consolidated FINRA Suitability Rule observed:
Reasonable-basis suitability requires a broker to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors.
In general, what constitutes reasonable diligence will vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the firm’s or associated person’s familiarity with the security or investment strategy.
A firm’s or associated person’s reasonable diligence must provide the firm or associated person with an understanding of the potential risks and rewards associated with the recommended security or strategy.
See Securities Exchange Act Release No. 63325 (November 17, 2010).
However, it was disclosed that at the time of sale in their offering materials, the Fund discloses that returns, and more importantly distributions, may be funded from unlimited amounts of offering proceeds or borrowings.
The Fund also discloses that it invests in securities that are rated below investment grade, often referred to as “junk,” which have predominantly speculative characteristics with respect to the capacity to pay interest and repay principal. In addition to a Fund Management Fee of 1.75%, the fund managers also receive a 20% “incentive fee” for all capital gains realized by the Fund.
In 2021, the Fund suspended its redemption or repurchase program.
As of even date, these shares have lost more than 75% of their original value.
According to SEC materials, selling broker-dealers, were paid fees and commissions of 13%, in connection with the offer and sale of these investments.
Investors in The FS Energy & Power Fund, and its related entities, should consult with qualified counsel to determine their legal rights.
Guiliano Law Group
Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.