Recent actions taken by FINRA include a cease and desist order and an expulsion, both over fraudulent conduct, and the signing of a memorandum of understanding with the Netherlands Authority for the Financial Markets (AFM) regarding financial market surveillance and supervision.
Firm Expelled, CEO Barred Over Fraud
FINRA announced that it had expelled New York-based Hudson Valley Capital Management and barred CEO Mark Gillis from the securities industry for defrauding its clearing firm and customers by using their funds and securities to cover losses caused by Gillis' manipulative day trading.
FINRA found that in 2012, Hudson Valley, acting through Gillis, used the firm's Average Price Account to improperly day trade millions of dollars of stock. Gillis then manipulated the share prices of these stocks and withdrew the proceeds of his day trading through accounts he controlled.
When Gillis' fraudulent trading caused significant losses in the firm's account, he covered those losses by making unauthorized trades involving customer accounts. Gillis purchased thousands of shares of securities in the open market in the firm's account and allocated these shares to customers at markups between 177%–280%.
He also converted a customer's funds to pay for an unauthorized stock purchase and caused another customer to sustain a loss of approximately $400,000. When confronted about unauthorized trades that occurred in their accounts, Gillis lied to two customers about the transactions to hide his misconduct, and lied to FINRA staff during sworn testimony.
Hudson Valley failed to supervise Gillis' trading activities at the firm; thus, Gillis was able to conduct his fraudulent trading scheme without restriction. Gillis' scheme caused a net capital deficiency for Hudson Valley in excess of $350,000.
In a statement, Cameron Funkhouser, executive vice president 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."
Cease and Desist Order Filed on Fraudulent Sales
Michigan-based WR Rice Financial Services and its owner Joel Wilson were the targets of a temporary cease-and-desist order (TCDO) filed by FINRA. The action was taken to halt further fraudulent sales activities, as well as the conversion of investors' funds or assets. FINRA filed the TCDO based on the belief that ongoing customer harm and depletion of customer assets would likely continue before a formal disciplinary proceeding against WR Rice and Wilson could be completed.
FINRA also issued a complaint against WR Rice and Wilson, charging fraud in the sales of limited partnership (LP) interests in entities affiliated with the Diversified Group and American Realty Funds Corp., companies in which Wilson has ownership interest and control.
