Customers have filed complaints and The Financial Industry Regulatory Authority (FINRA) recently barred broker John Hudnall (Hudnall) – formerly with U.S. BanCorp Investments, Inc. (U.S. BanCorp). The securities attorneys at Gana Weinstein LLP are investing the allegations against Hudnall including unsuitable investments among other claims. According to brokercheck records Hudnall has been subject to six customer complaints and one criminal matter. Many of the complaints involve direct participation products (DPPs) and variable annuities such as non-traded real estate investment trusts (REITs) and other alternative investments.
In FINRA’s complaint against Hudnall it was alleged that he participated in an undisclosed and unapproved private securities transaction by selling a REIT investment to an elderly customer which he split into two simultaneous transactions of $40,000 and $360,000. FINRA alleged that Hudnall did this to circumvent his firm’s supervisory review of such a large transaction of this kind. According to FINRA, the $400,000 REIT investment exceeded the firm’s supervisory thresholds and would have triggered additional supervisory review and likely would have been disapproved. FINRA also alleged 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.
Our firm has represented many clients in illiquid alternative investments products. All of these investments come with high costs and have historically underperformed even safe benchmarks, like U.S. treasury bonds. For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all. However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them and have created a large market for a failed product. Further, investor often fail to understand that they have lost money in these illiquid investments until many years after investing. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
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