FINRA barred former ACAP Financial Inc. (Salt Lake City, Utah) Anti-Money Laundering Compliance Officer, Gary Hume, in facilitating the liquidation of over 3.3 billion unregistered penny stock shares in accounts controlled by a person who had previously been barred by NASD and SEC from participating in penny stock offerings.
FINRA also found that ACAP itself failed to investigate this client's significant disciplinary history, and that Hume (CRD #1216949) violated FINRA rules by causing illicit sales of unregistered securities; the improper sales generated over $5 million in proceeds and $144,010 in commissions for ACAP.
The report states that the penny stock liquidation activity followed a pattern: first, the accounts acquired penny stocks or debt instruments. Then, the previously-barred customer liquidated the sales shortly after their deposit before finally wiring the proceeds out of the accounts shortly after the sales.
Investigators wrote that even when Hume's group detected red flags (if they detected them at all), they "took no action" to investigate or question the conduct and failed to file Suspicious Activity Reports.
The findings state that certain shares, such as eMax Worldwide, Inc. (MPIX) shares, where not held for the required one-year holding period, and that certain other unregistered shares such as CGRA, PRPM, and TDEY were associated with shell companies and traded on OTC Markets, similarly held for less than the minimum holding period.
Investigators additionally pointed out that Hume was the registered representative assigned to several of the accounts where suspicious penny stock liquidation activity—that should have resulted in investigation —took place, including several instances where ACAP's customers held an ownership interest in the very penny stocks being bought and liquidated.
FINRA also cited former ACAP President Kirk Lynn Ferguson in its settlement, and expelled ACAP Financial for this and similar misconduct; Ferguson received a two-year suspension and $25,000 fine.
Meanwhile, former ACAP Financial Inc broker Joe Edward Poe (CRD #1650897) recently received a suspension for multiple willful disclosure failures; in Poe's case, ACAP served as his 17th employing firm, several of which have been barred from the industry for various instances of misconduct.
The pattern follows a trend of troubled brokers who move from one risky firm to another in a phenomenon called "cockroaching," wherein brokers migrate to new brokerages ahead of impending FINRA investigations and sanctions. For the cockroach brokers, several short-term stop firms in their file may indeed receive expulsions themselves, which may well be taken as a red flag in the course of researching a broker's history.
If you have invested with former ACAP Financial's Gary Hume or with a constantly migrating broker with their own history of misconduct like Joe Poe, and have suffered harm as a result of improper sales of unregistered penny stocks or other securities, illicit sales, disclosure failures, and red flags that weren't properly investigated as part of a firm's due diligence or supervisory process, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.