FINRA has opened an investigation into John Stuart Hudnall, formerly of U.S. Bancorp Investments in San Francisco, CA, alleging that he participated in an undisclosed and unapproved private securities transaction regarding an elderly client's non-traded real estate investment trust (REIT) and that he recommended and sold unsuitable fixed and variable annuity products. The alleged violations occurred when Hudnall was associated with BancWest Investment Services and US Bancorp, both in California.
OHO Disciplinary Proceeding #2013036412601
The complaint states that while registered with BancWest, Hudnall artificially split an 80-year-old customer's $400,000 REIT investment into two parts so as to circumvent the firm's supervisory review of the overall transaction, which a $400k transaction would have triggered pursuant to BancWest's concentration guidelines. Investigators said that had the transaction been fully disclosed to BancWest, it "likely would have been disapproved" due to exceeding the firm's internal concentration thresholds.
In order to avoid detection, Hudnall allegedly sold away by submitting subscription paperwork for $360,000 of the $400,000 REIT investment directly to the REIT sponsor, instead of to BancWest, which received paperwork for just $40,000—or just 10% of the entire REIT investment, which exceeded 10% of the elderly customer's liquid net worth in contravention of firm guidelines.
Hudnall purportedly generated $25,200 in gross commissions for the $360,000 portion of the REIT investment he sold away from the firm.
The investigation also indicates that Hudnall offered and paid monetary incentives to two customers from his own personal funds to purchase and hold Jackson National Optimax 4 fixed annuities for a year before surrendering them, enabling Hudnall to retain over $20,000 in commissions plus a $7,000 net payout, in contravention of industry rules: Hudnall allegedly failed to disclose this activity to BancWest and engaged in an unapproved sales promotion.
Regarding the unsuitable variable annuity sale, Hudnall allegedly recommended and sold the Prudential Premier Retirement Variable Annuity B Series, a VA that provided "no material benefit" to the customer, according to the complaint, and instead offered less flexibility, fewer investment options, and additional liquidity risk.
FINRA said the Prudential VA was "overly costly and unsuitable," which generated Hudnall a 5% gross commission. Finally, FINRA charged Hudnall with filing false responses to requests for information related to the annuity transactions.
Hudnall's BrokerCheck report indicates a handful of customer disputes, including one settled dispute alleging that the customer's money was placed in annuity without his knowledge: "The money disappeared, with nothing online, no statements, nothing," according to the allegations.
If you have invested with John Stuart Hudnall or with any broker or financial adviser whose improper REIT or VA transactions, or selling away activity was unsuitable and over concentrated your investment or otherwise has proven harmful to your financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.