FINRA

Hudnall was named a respondent in a FINRA complaint alleging that he participated in an undisclosed and unapproved private securities transaction. The complaint alleges that Hudnall recommended and sold a Real Estate Investment Trust (REIT) investment to an elderly customer at his member firm, which he split into two simultaneous transactions of $40,000 and $360,000. To circumvent his firm's supervisory review of such a large transaction of this kind, Hudnall executed the $360,000 portion of the REIT Investment for the customer directly with the REIT product sponsor and without providing the requisite prior written notice to his firm. The $400,000 REIT Investment exceeded the firm's supervisory thresholds and thus, if fully disclosed to the firm, would have triggered additional supervisory review and likely would have been disapproved. The complaint also alleges that Hudnall made a promotional offer in which he promised to pay certain customers who purchased fixed annuities 1% annual interest if they held their fixed annuities for at least a year, when in fact this offer was not part of the fixed annuity product that he was selling. Hudnall did not disclose to his customers that the interest payments he promised to them would be paid, and ultimately were paid, from his personal funds. Hudnall did not disclose to his firm either his promotional offer or his related payments to the customers. The complaint further alleges that, while registered with another member firm, Hudnall made an unsuitable variable annuity sale to an elderly customer that failed to provide any material benefit, offered less flexibility than a traditional IRA, was inconsistent with the customer's investment goal, represented a far smaller selection of investment options than a traditional IRA, incurred additional liquidity risk (associated with surrender fees), provided no tax deferral benefit (as the funds involved were already qualified), and involved no particular death protection benefit (given that the customer already had adequate life insurance). In addition, the complaint alleges that Hudnall submitted a response to a FINRA request for information in which he answered 'no' to the question of whether he had provided cashier's checks to any firm customer, when in fact he had provided cashier's checks to customers.

Decision & Order of Offer of Settlement

Bar (Permanent)

All Capacities

11/15/2016

Without admitting or denying the allegations, Hudnall consented to the sanction and to the entry of findings that he participated in an undisclosed and unapproved private securities transaction, made unapproved and undisclosed financial sales promotions to firm customers, and provided false information in response to FINRA's request for information. The findings stated that Hudnall recommended and sold a Real Estate Investment Trust (REIT) investment to an elderly customer, which he split into two simultaneous transactions of $40,000 and $360,000. To circumvent his member firm's supervisory review of such a large transaction of this kind, Hudnall executed the $360,000 portion of the REIT investment for the customer directly with the REIT sponsor and without first providing it to the firm for the requisite prior pre-approval and the prior written notice. The $400,000 REIT Investment exceeded the firm's supervisory thresholds and thus, if fully disclosed to the firm, would have triggered additional supervisory review and likely would have been disapproved. Hudnall generated a gross commission of $25,200 in connection with the $360,000 portion of the REIT Investment. The findings also stated that Hudnall offered and paid monetary incentives to customers from his own personal funds to incent them to hold their fixed annuity contracts for at least a year before surrendering them, which enabled Hudnall to retain commissions he would have lost had the customers surrendered before the year was up. Hudnall made a promotional offer in which he promised to pay certain customers who purchased fixed annuities 1 percent annual interest if they held their fixed annuities for at least a year, when in fact this offer was not part of the fixed annuity product that he was selling. Hudnall did not disclose to his customers that the interest payments he promised to them would be paid, and ultimately were paid, from his personal funds, rather than the annuity issuer. Hudnall did not disclose to his firm either his promotional offer or his related payments to the customers. The findings also included that Hudnall's response to FINRA's request for information was inaccurate because it falsely denied that he had provided cashier's checks to any firm customers when in fact, as he later admitted, he had provided cashier's checks to the customers.