John S. Hudnall, of San Francisco, California, a stockbroker formerly registered with U.S. Bancorp Investments and Bancwest Investments Services, Inc., was permanently barred by Financial Industry Regulatory Authority (FINRA) Department of Enforcement per an Office of Hearing Officers’ Order Accepting Offer of Settlement containing findings that Hudnall engaged in unauthorized private securities transactions or selling away, effected unsuitable recommendations, and made false representations to FINRA concerning his activities. Department of Enforcement v. Hudnall, No. 2013036412601 (Nov 14, 2016).
According to the Order, in May 2012, at which point Hudnall was registered with BancWest, he facilitated an unauthoirzed private securities transaction. Specifically, a customer’s $400,000.00 investment in a real estate investment trust had been separated by Hudnall into two parts, where Hudnall had only disclosed one part ($40,000.00) to supervisory personnel at BancWest for approval.
Apparently, throughout this time frame, BancWest required real estate investment trust sales to be approved by the firm prior to a sponsor of such investment receiving funds. Hudnall reportedly submitted $360,000.00 of the customer’s funds directly to the sponsor of the real estate investment trust, which enabled him to circumvent his firm’s supervisory procedures.
Particularly, during which time Hudnall split up the real estate investment trust investment into two transactions, the policies of his firm dictated that a customer’s investment in a specific real estate investment trust sponsor could not consist of more than ten percent of the customer’s net worth. Moreover, the firm evidently restricted customers from investing more than twenty percent of their net worth in real estate investment trust products.
Had the firm been notified of the customer’s full investment, the firm’s guidelines would have reportedly indicated that the client’s investment was overconcentrated in real estate investment trusts, and the transaction would have been denied accordingly. Apparently, Hudnall was able to accumulate commissions which totaled $25,200.00 as a result of the customer’s $360,000.00 investment in the real estate investment trust; the portion which Hudnall omitted from his firm. FINRA found that Hudnall’s conduct was violative of NASD Rule 3040 due to his part in facilitating an unauthorized private securities transaction.
Additionally, the Order stated that in April 2011 and July 2012, Hudnall engaged in sales promotions which had not been authorized through his firm. Apparently, Hudnall offered and paid customers with his own personal monies in return for customers committing to not surrender their positions in fixed annuity contracts which were issued by Jackson National.
Hudnall seemingly expected to keep the commissions pertaining to customers’ fixed annuity transactions in the event that such customers maintained the accounts for a minimum of one year prior to surrendering the contract. Particularly, Hudnall’s promotion purportedly enabled customers to be paid an annual return of one-percent; however, such promotion was not authorized via Jackson, but offered personally through Hudnall.
According to the Order, Hudnall withheld mention to his firm that customers were paid the funds associated with the promotion. Evidently, Hudnall’s firm would not have ever approved of his promotion had Hudnall actually disclosed it to his firm. Hudnall apparently earned gross commissions which totaled $13,750.00 pertaining to four fixed annuities purchased by one customer. Hudnall also reportedly earned $6,985.00 in gross commissions associated with another customer’s four annuity purchases.
The Order stated that such customers who held their annuities per Hudnall’s promotion were unaware that the payments were coming from Hudnall as opposed to BancWest or Jackson National. FINRA found that Hudnall’s conduct was violative of FINRA Rule 2010 due to his unauthorized promotions to the firm’s customers.
The Order additionally stated that during which time Hudnall was registered with U.S. Bancorp, he had effected a sale of a variable annuity in July 2014 which was not suitable for one of the firm’s customers. Particularly, the Order revealed that customer RD, who was a moderate to conservative sixty-eight-year-old investor at the time, planned to transfer his pension assets from a prior employer into an individual retirement account without subjecting the funds to market risk. Hudnall purportedly recommended that the customer purchase a Prudential Variable Annuity, which allowed Hudnall to earn a commission equating to five percent.
FINRA stated that Hudnall’s recommendation of the Prudential Variable Annuity was not geared towards addressing RD’s needs; it was excessively costly as compared to alternative investment options available to RD. Apparently, the annuity did not enable RD to receive any considerable benefit due to the additional costs pertaining to such product. The annuity was reportedly not as flexible as an individual retirement account would have been, did not contain as many investment options as an individual retirement account, and contained higher risks pertaining to liquidity due to applicable surrender penalties. As such, FINRA found that Hudnall violated FINRA Rules 2010 and 2111 because of his unsuitable recommendations.
FINRA additionally found that Hudnall made inaccurate statements to FINRA concerning cashier’s checks which Hudnall provided to customers per his unauthoirzed promotions. Evidently, Hudnall admitted to FINRA personnel that he provided customers BC and FM with cashier’s checks, after he had denied doing such when questioned by FINRA. As such, FINRA found that Hudnall’s conduct was violative FINRA Rules 2010 and 8210.
FINRA Public Disclosure reveals that Hudnall has been subject to eight incidents concerning misconduct, five of which involve customer arbitrations. On March 29, 2005, a customer initiated investment related arbitration claim involving Hudnall’s conduct was settled for $2,500.00 in damages based upon allegations that Hudnall made misrepresentations to the customer concerning tax labilities on investments. On October 10, 2014, a customer initiated investment related arbitration claim involving Hudnall’s actions was settled for $2,075.49 in damages based upon allegations that Hudnall effected transactions in the customer’s account without requisite authorization.
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