Initiated By
FINRA
Allegations
WILLFULLY VIOLATED SECTION 10(B) OF THE SECURITIES EXCHANGE ACT, RULE 10B-5 THEREUNDER, CAUSED A VIOLATION OF SECTIONS 15(C), 15(C)(1)(A) OF THE EXCHANGE ACT, RULE 15C3-1 THEREUNDER, VIOLATED FINRA RULES 2010, 2020, 4511, 8210, NASD RULE 2440, INTERPRETATIVE MATERIAL 2440-1 - MARK GILLIS, AS HIS MEMBER FIRM'S CHIEF EXECUTIVE OFFICER (CEO), CHIEF COMPLIANCE OFFICER (CCO), FINANCIAL AND OPERATIONS OFFICER (FINOP) AND 50% OWNER OF THE FIRM, CIRCUMVENTED THE CAPITAL AND EQUITY REQUIREMENTS FOR PROPRIETARY TRANSACTIONS AND DAY TRADING BY USING THE FIRM'S AVERAGE PRICE ACCOUNT TO IMPROPERLY DAY TRADE MILLIONS OF SHARES OF STOCK AND THEN TRANSFERRED MONEY TO HIMSELF BY TRADING BETWEEN HIS OWN PERSONAL BROKERAGE ACCOUNT AND THE AVERAGE PRICE ACCOUNT AT PRICES BENEFICIAL TO HIS PERSONAL ACCOUNT TO THE DETRIMENT OF THE AVERAGE PRICE ACCOUNT. IN FURTHERANCE OF HIS SCHEME TO DEFRAUD, GILLIS COVERED TWO SHORT POSITIONS IN THE AVERAGE PRICE ACCOUNT BY MAKING COVERED PURCHASES OF STOCK FROM HIS WIFE'S BROKERAGE ACCOUNT AT SHARE PRICES HIGHER THAN THE MARKET PRICE. TO COVER LOSSES, GILLIS INVOLVED FIRM CUSTOMERS BY ENTERING UNAUTHORIZED TRADES IN CUSTOMER ACCOUNTS AND ALLOCATING SHARES TO THESE CUSTOMERS AT EXCESSIVE AND UNREASONABLE MARKUPS. TO COVER THE TRADING LOSSES IN A STOCK IN THE AVERAGE PRICE ACCOUNT, HE ENGAGED IN A FRAUDULENT POST-EXECUTION TRADE ALLOCATING SCHEME, IN WHICH HE PURCHASED A LARGE POSITION OF STOCK AND IMPROPERLY ALLOCATED THESE SECURITIES TO CUSTOMER ACCOUNTS AT EXCESSIVE MARKUPS. THE FIRM'S CLEARING FIRM LIQUIDATED OVER 470,000 SHARES OF STOCK VALUED AT $92,000 FROM AN ACCOUNT AS A FORCED SALE TO COVER A MARGIN CALL IN THE ACCOUNT RESULTING FROM AN UNAUTHORIZED PURCHASE OF ANOTHER STOCK. CUSTOMERS WERE CHARGED $558,500 FOR UNAUTHORIZED PURCHASES OF STOCK AT EXCESSIVE MARKUPS AVERAGING OVER 218%. GILLIS WAS ABLE TO CONCEAL LOSSES IN THE AVERAGE PRICE ACCOUNT FROM HIS FIRM'S CLEARING FIRM THROUGH UNAUTHORIZED TRADING AND ALLOCATING SHARES TO CUSTOMER ACCOUNTS AT EXCESSIVE MARKUPS. GILLIS CHARGED MARKUPS TO CUSTOMERS THAT WERE NOT FAIR AND REASONABLE. GILLIS ENTERED UNAUTHORIZED TRADES IN CUSTOMER ACCOUNTS AND USED THESE UNAUTHORIZED TRADES TO PURCHASE STOCK AT HIGHLY ELEVATED FICTITIOUS PRICES, AND CHARGE THE HIGHER PRICE TO CUSTOMERS TO PAY FOR LOSSES INCURRED BY HIS DAY TRADING IN THE AVERAGE PRICE ACCOUNT. GILLIS ALSO USED UNAUTHORIZED TRADING TO COVER DAY TRADING LOSSES. IN ADDITION TO THE UNAUTHORIZED CUSTOMER TRADES ASSOCIATED WITH HIS SCHEME TO DEFRAUD, GILLIS EXECUTED ADDITIONAL UNAUTHORIZED TRADES IN THE FORM OF SHORT SALES AND COVERED PURCHASES IN A PENSION FUND RESULTING IN AN ADDITIONAL LOSS OF APPROXIMATELY $395,756 TO THE PENSION FUND. GILLIS DID NOT HAVE WRITTEN DISCRETIONARY AUTHORITY TO TRADE IN CUSTOMER ACCOUNTS NOR DID THE CUSTOMERS GIVE HIM PERMISSION AND AUTHORITY TO EFFECT THESE TRANSACTIONS. GILLIS PROVIDED FALSE INFORMATION DURING A FINRA ON-THE-RECORD INTERVIEW BUT LATER RECANTED HIS PRIOR TESTIMONY DURING A SECOND INTERVIEW. A THIRD PARTY REPRESENTATIVE FOR A CUSTOMER CONTACTED GILLIS TO REPORT UNAUTHORIZED TRADING IN THE ACCOUNT AND GILLIS MISREPRESENTED THAT THE TRADES WERE THE RESULT OF ERRORS AND WOULD BE CORRECTED. RATHER THAN REVERSING THE TRANSACTION AND BOOKING THE TRANSACTIONS TO THE FIRM'S ERROR ACCOUNT, GILLIS EXECUTED ADDITIONAL UNAUTHORIZED TRANSACTIONS IN THE ACCOUNT TO UNWIND THE POSITIONS AT A LOSS TO THE CUSTOMER OF APPROXIMATELY $395,756. A CUSTOMER CONFRONTED GILLIS ABOUT UNAUTHORIZED TRADING IN HIS ACCOUNT AND GILLIS MISREPRESENTED THAT THE TRADES IN QUESTIONS WERE THE RESULT OF ERRORS MADE BY THE CLEARING FIRM. [CONTINUED IN COMMENT]
Resolution
Acceptance, Waiver & Consent(AWC)
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Duration
Indefinite
Start Date
11/8/2012
Regulator Statement
ALLEGATIONS CONTINUED: GILLIS CREATED ELECTRONIC ORDER TICKETS FOR A STOCK PURCHASE AT MARKET-UP SHARE PRICES; THE SHARE PRICE INFORMATION RECORDED BY GILLIS WAS FALSE, CREATING INACCURATE BOOKS AND RECORDS FOR THE FIRM. GILLIS ALSO CREATED ELECTRONIC ORDER TICKETS FOR UNAUTHORIZED TRANSACTIONS IN CUSTOMER ACCOUNTS THAT CONTAINED FALSE PURCHASE AND SALE INFORMATION WHICH CREATED INACCURATE BOOKS AND RECORDS FOR THE FIRM. GILLIS CAUSED HIS MEMBER FIRM TO OPERATE IN A NET CAPITAL DEFICIENCY DUE TO HIS UNAUTHORIZED TRADING. GILLIS FILED A WRITTEN NOTIFICATION TO FINRA ACKNOWLEDGING THE DEFICIENCY.WITHOUT ADMITTING OR DENYING THE FINDINGS, GILLIS CONSENTED TO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS; THEREFORE, HE IS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY. THIS SETTLEMENT INCLUDES A FINDING THAT GILLIS WILLFULLY VIOLATED SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER, AND THAT UNDER ARTICLE II, SECTION 4 OF FINRA'S BY-LAWS, THIS MAKES GILLIS SUBJECT TO A STATUTORY DISQUALIFICATION WITH RESPECT TO ASSOCIATION WITH A MEMBER.
