FINRA Charges Financial Adviser with Fraudulent REIT Sale
The Financial Industry Regulatory Authority has filed a complaint against former Bancwest broker, John Stuart Hudnall, for allegedly participating in an undisclosed and unapproved private securities transaction.
In a complaint that was filed on Monday, FINRA alleges that in May 2012, while Hudnall was registered with BancWest Investment Services, he recommended and sold a $400,000 Wells Core Office Income REIT investment to an 80-year old customer which he split into two simultaneous transactions of $40,000 and $360,000.
In order to circumvent BancWest’s supervisory review of such a large transaction, Hudnall allegedly split the ticket and executed the $360,000 portion of the REIT investment directly with the REIT sponsor, while submitting only the $40,000 portion to BancWest for its supervisory review.
BancWest requires sales of non-traded REITs to follow specific procedures in order to ensure supervisory scrutiny, including pre-approval of all sales before the investment transmittal forms and payment were forwarded to the REIT sponsor.
The firm’s supervisory manual specifies that no more than 10 percent of a client’s liquid net worth could be invested with a particular REIT sponsor, and no more than 20 percent of a client’s liquid net worth could be invested in all REIT holdings combined. Any exceptions require pre-approval from a regional sales manager.
The investment in question would have triggered BancWest’s supervisory review and likely would have been disapproved if it were appropriately disclosed, according to the complaint.
Hudnall generated a $25,200 commission in connection with the $360,000 portion of the investment.
NASD Conduct Rule 3040 states that an associated person may not participate in any securities transaction outside of their member firm without first providing written notice detailing the transaction, their role, and whether they will receive sales commissions relating to the transaction.
Hudnall, who is no longer registered, entered the securities industry in 2000 and was associated with four member firms before joining BancWest in September 2010.
