Saranac Lake man indicted on stock-trading charges
SARANAC LAKE — A federal grand jury indicted a local businessman this summer on charges of wire fraud and securities fraud, related to stock trades he made in 2012.
Mark Gillis and his wife currently own and operate Blue Line Brewery, based in Saranac Lake with a second location in Potsdam, but at the time of the alleged crimes he was chief operating officer of Hudson Valley Capital Management, with an office on Academy Street in Saranac Lake.
An indictment is when a grand jury, a specialty jury of citizens who handle multiple cases, decides there is enough evidence to proceed to trial. Assistant U.S. Attorney Michael Barnett filed this indictment on July 20 in U.S. District Court in Syracuse.
A jury trial is scheduled for Oct. 10 at the district court in Syracuse. Gillis, who has been released on his own recognizance, is restricted to Clinton, Franklin, Essex and St. Lawrence counties until the trial date.
The grand jury charged Gillis with three counts of wire fraud and one count of securities fraud. Each wire fraud count carries a penalty of up to 30 years in prison, and the securities fraud charge could mean up to 25 years. The government is seeking a $558,650 fine. Gillis also stands to forfeit any any property he purchased using the money obtained through illegal activities.
According to FINRA, the Financial Industry Regulatory Authority, in July 2012, Gillis used the accounts of three HVCM clients to recoup losses he made trading Amazon stock. In October 2012, FINRA sanctioned Gillis for illegal day trading and expelled him from the securities industry.
According to the indictment, between July 26 and 30 of 2012, Gillis day-traded shares of Amazon.com using HVCM’s accounts, “resulting in losses of approximately $400,000.” The indictment alleges that Gillis tried to recoup his losses by buying shares of another company and transferring them to three clients’ accounts at vastly inflated prices. On July 26, Gillis reportedly bought 50,000 shares of Supervalu Inc. at $1.99 per share, and on the following day transferred half of those shares to one client at $5.99 per share and the other half to a client at $7.59 per share. On July 30, according to the indictment, Gillis bought another 35,000 shares of Supervalu Inc. at $2.26 per share and transferred them to a third client at $6.26 per share.
According to the agency’s documents, Gillis saw an increase of $20,000 in his personal brokerage account, from which he withdrew $19,000. He is also alleged to have used the company’s accounts to buy marked-up shares from his wife’s brokerage account, resulting in a net gain of $1,600 to her and a corresponding loss of $1,600 to HVCM.
Initially, when two of the clients complained about unauthorized trading on their accounts, Gillis denied it, according to FINRA. The agency says he also denied wrongdoing at first when questioned by its regulators. However, he later admitted fault and tried to reach a settlement with the regulatory agency.
In November 2012, FINRA’s department of enforcement accepted a letter from Gillis and HVCM proposing a settlement of the alleged rule violations. In agreeing to the sanctions proposed by FINRA, Gillis received the regulatory agency’s assurance that it would not bring any future actions against him and HVCM based on the same allegations. However, while the settlement letter may have ended Gillis’ discipline through FINRA, it didn’t preclude anyone else from suing.
In that letter, FINRA noted that HVCM “failed to adequately supervise Gillis’ trading activities at the firm.” In 2010, the agency had cautioned HVCM that Gillis, in essence, could not be the compliance officer in charge of himself. Co-owner of the firm William Doller had assured FINRA that he would supervise Gillis, but FINRA said this never happened. If it had, the agency said, Gillis’s improper day-trading activities would have come to light.
FINRA also noted that in order to conduct day trading, in which shares of stock are bought and sold within a given day, HVCM should have maintained a net capital of $100,000. During 2012, Gillis had an average of $12,000 in his account and couldn’t conduct day trading in his personal account because he fell short of the minimum equity levels required.
Therefore, FINRA alleged, Gillis used the company’s account to trade, but once the company’s net capital fell below $100,000, the rules required him to stop trading and report the company’s status to FINRA. However, the agency said, about Aug. 1, when the firm’s net capital went $350,000 into the negative, Gillis kept trading.
Not all of the allegations rise to the level of the felony indictment. FINRA states that Gillis executed “at least 18 additional unauthorized trades” between February and July of 2012, and “created electronic order tickets for at least 22 unauthorized transactions.” Unauthorized transactions are stock trades made without the consent of the persons owning the stock.
Neither Gillis, his lawyers Lee Carey Kindlon and Martin Bonventre of Albany, nor federal prosecutors could be reached for comment.