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.
(Reporting By Suzanne Barlyn; Editing by Theodore d'Afflisio)