[ by Howard Haykin ]

FINRA announced on Thursday it had expelled NY-based Hudson Valley Capital Management and barred the firm's CEO from the securities industry.  FINRA charged each with defrauding its clearing firm and customers - by misappropriating funds and securities that they used to cover losses caused by the CEO's manipulative day trading.  The respondents accepted FINRA's sanctions in order to settle the charges.

Profiles of Respondents.   Hudson Valley Capital Management - fka "Securities Trading" - has been a FINRA member since 1989. The Croton-on-Hudson, NY, firm is an introducing broker-dealer that conducts general securities business. It also maintains a branch office in Saranac Lake, NY.  Hudson Valley is owned by Hudson Valley Capital Management LLC.  Mark Joseph Gillis, CEO of Hudson Valley, and Charles William Doller III, President of Hudson Valley, each own 50% of the Parent Company, and are the only two individuals associated with Hudson Valley.

Mark Gillis entered the securities industry in 1993 and has been associated with 8 present and former FINRA-registered broker-dealers. He holds the Series 7, Series 63, Series 24, and Series 28 securities licenses - that he obtained throughout his 18 year career.  Gillis currently wears many hats at the firm:  CEO, CCO, CFO, and FinOp. He also is a registered rep and the broker of record for over 80 customer accounts held at the Firm.  Further, Gillis also is currently associated with a second broker-dealer - WCG - serving in the capacity of a registered rep. 

FINRA Findings and Allegations.   During 2012, in order to circumvent established net capital and minimum account equity requirements, Hudson Valley, acting through Gillis, used the Firm’s Average Price Account to improperly day trade millions of dollars of stock.  Gillis ensured that he would personally benefit from his day-trading by making his personal brokerage account the counterparty to certain purchases and sales in the Average Price Account.

When allocating shares from the  Average Price Account to his personal brokerage account in connection with these transactions, Gillis marked-up or marked-down corresponding share prices, giving his personal brokerage account more favorable prices in order to transfer money from the Average Price Account to his personal brokerage account.  Gillis thereafter withdrew from his personal brokerage account the proceeds that were generated by his improper day trading allocations.  

When the day-trading activities caused significant monetary losses in the Average Price Account, Gillis engaged in a scheme to defraud Hudson Valley’s clearing firm and customers by using their funds and securities to cover the losses.  He engaged in unauthorized trading in a customer account, selling off the customer’s stock and improperly using those shares to partially cover a short position in the Average Price Account that was too costly to cover from the open market. 

Gillis further engaged in a fraudulent post-execution trade allocation scheme, whereby he, without receiving any customer orders, bought thousands of shares of securities in the open market for the Average Price Account, and allocated those shares to several customer accounts with markups ranging from 177% to 280%.  Gillis also converted the funds of a customer tot pay for an unauthorized stock purchase.  

In connection with the scheme to defraud, during 2012 Gillis also engaged in unauthorized trading in several customer accounts, causing at least one customer to sustain a loss of approximately $400,000. Gillis' unauthorized trading in customer accounts, as well as excessive markups, caused the Firm to create and maintain inaccurate books and records. 

Gillis' improper trading in customer accounts caused a net capital deficiency for Hudson Valley in excess of $350,000. Gillis was able to engage in fraudulent and unauthorized trading because Hudson Valley failed to adequately supervise his trading activities at the Firm.  During FINRA's investigation of this matter, Gillis made misstatements during sworn testimony and in writing in connection with his improper trading activities. Gillis made further misstatements to two or more customers in order to conceal his scheme to defraud and his unauthorized trading in customers' accounts.
 

Cameron Funkhouser, EVP of FINRA's Office of Fraud Detection and Market Intelligence, said, "FINRA strives to quickly address egregious broker misconduct. In this instance, FINRA fully investigated Mr. Gillis and Hudson Valley Capital Management within weeks of Gillis perpetrating his fraudulent scheme, and obtained evidence that led to the disciplinary action announced today."
 
FINRA's investigation was conducted by:

• the Office of Fraud Detection and Market Intelligence,
• the Department of Member Regulation Sales Practice, and
• the Department of Enforcement.

For further details, go to:  [FINRA News Release, 11/8/12] and [FINRA AWC #20120335229 ].