Nov 8 (Reuters) – Wall Street’s industry funded regulator
has expelled Hudson Valley Capital management and its chief
executive officer from the securities industry for defrauding
its clearing firm and customers to cover losses from his day
trading.
The Financial Industry Regulatory Authority, in an
announcement Monday, said that Hudson Valley, a brokerage based
in Croton-on-Hudson, New York, and its chief executive officer,
Mark Gillis, used one of the firm’s accounts to “improperly day
trade” millions of dollars in stock.
FINRA’s action on Thursday illustrates how the lack of an
independent compliance officer, a situation common at many small
brokerages can lead to the mishandling of customer money.
Gillis, one of two FINRA-licensed people to work at Hudson
Valley, had other titles at the firm, including chief compliance
officer and chief financial officer.
He did not return a call requesting comment. A phone number
listed for Hudson Valley was not working on Thursday morning.
Gillis, in a settlement with FINRA, neither admitted nor denied
FINRA’s findings.
Gillis, according to FINRA, manipulated the share prices of
stocks that he day-traded and withdrew the proceeds of his day
trading through accounts he controlled.
When Gillis’ alleged fraudulent trading caused significant
losses in Hudson Valley’s account, he covered them by making
unauthorized trades in customer accounts. Gillis bought
thousands of shares of securities in the open market in Hudson
Valley’s account, and then allocated those shares to customers
at markups between 177 and 280 percent, according to FINRA.
He also converted a customer’s funds to pay for an
unauthorized stock purchase, and caused a loss of about $400,000
in another customers’ account, FINRA said. He then lied about
the unauthorized trades when questioned by customers and also
lied to FINRA staff during testimony, according to FINRA.
The fraudulent trading led to a net capital deficiency of
more than $350,000, said FINRA. Industry rules require
brokerages to have certain amounts of “net capital” or cash on
hand, depending on numerous factors, such as the types of
securities they trade.
