CINCINNATI (AP) — The U.S. suspect in the slaughter of 16 villagers in Afghanistan has a trail of shaky financial dealings — from working in penny-stock boiler rooms that drew numerous client complaints, to an unpaid $1.5 million fraud judgment, to a failed investment partnership with a former high school football teammate, records show.
Staff Sgt. Robert Bales joined the Army in 2001 after a Florida investment business failed and after he had worked with a string of securities operations with one company official now barred from trading in Ohio. That broker and Bales were socked in 2003 with a $1.5 million arbitration ruling after an elderly couple charged that their holdings were decimated.
Bales responded to another client complaint by saying the company officer, Michael Patterson, had wrongly blamed Bales for bad trades for an elderly client.
Bales, 38, is being held in Fort Leavenworth, Kan., while a military investigation continues into the nighttime rampage in Afghanistan. His attorney said Tuesday he expects the case to be lengthy.
“Everyone has financial problems,” attorney John Henry Browne said Tuesday of Bales’ money problems, including a planned sale of his Seattle-area home for $50,000 less than he and his wife paid for it in 2005. “But you don’t go around killing innocent women and children over financial problems.”
Bales’ investment career — from 1996 to 2001 — followed the rise and fall of the tech stock bubble, which burst in 2001, causing an historic stock-market crash months before the Sept. 11, 2001, attacks. After college, he worked for a web of companies accused of numerous petty financial frauds, records show. Bales shuttled between five different companies tied to the same principals until 2000, when he founded the doomed venture with former NFL player Marc Edwards.
Bales joined the Army two months after Sept. 11, after a Florida business dissolved and 18 months after the Ohio couple charged him with fraud, unauthorized trading and breach of financial responsibility. That complaint was upheld in a 2003 arbitration. A second complaint in Ohio charged him with unauthorized trading.
Records show Bales told the state in that case that the trades were done by a company principal who “told the elderly client they were my responsibility” but that they were carried out after he had left the company, called MPI Financial.
Records show he never responded to the complaint that led to the $1.5 million judgment, issued a few months before he went on his first of three tours in Iraq.
Patterson, who ran a company called Michael Patterson Inc., is barred from dealing with securities in the state, Ohio Department of Commerce records show.
Patterson’s former attorney said Tuesday he didn’t know how to contact him.
Public filings with an industry regulator show Bales was registered to sell investments for five companies that appear to have been fronts for the same group: Hamilton-Shea, Quantum Capital, Michael Patterson Inc. (MPI), Capital Securities of America and Quantum Securities Corp.
All of the companies are related to Regis Securities Corp., which filed for bankruptcy protection in 2009. At the time, it was wholly owned by Robert Cargin, now president of Capital City Securities LLC in Columbus, Ohio. Cargin did not respond to requests for comment.
Hamilton-Shea was one of dozens of “pump-and-dump” operations that sprouted in Florida in the late 1990s. The so-called boiler rooms’ salesmen pushed low stocks to boost prices, then dumped shares to grab profits.
While Bales worked there in 1999, Hamilton-Shea sold cheap stock for a medical-device company, Diabetic Services Inc., that was charged with overbilling the government for reimbursements and sold black-market products, according to a former employee’s lawsuit.
The company later went public, before filing for bankruptcy protection. The employee later agreed to drop the lawsuit; the details of the case are sealed.
Hamilton-Shea ignored customer complaints, repeatedly misled customers about penny stocks it was selling, employed brokers who weren’t properly registered and failed to supervise its brokers, regulatory records charged.
“It was an interesting outfit,” said Brent Rosenthal, an attorney who helped represent two of the companies linked to Bales. “When you have these guys who do these penny stocks, it’s like the used car salesmen of the securities world.”
Three Hamilton-Shea principals were accused in a 29-count indictment of federal criminal fraud charges in 2001. Prosecutors said they accepted discounted stocks from companies with shaky finances, manipulating their prices and pocketing the profits. One served a five-year sentence for mail fraud and two others served a year and a day for conspiracy.
Bales was not mentioned in the indictment.
The couple that filed the complaint in the $1.5 million Ohio case says Bales never paid. The Financial Industry Regulatory Authority and Ohio records indicate no action was taken to revoke Bales’ broker’s license. Officials noted he hadn’t been active for some three years.
In 2000, a year before he joined the Army, Bales joined a Florida company called Spartina Investments Inc. with former NFL player Marc Edwards, his Norwood, Ohio, high school teammate who went on to win the Super Bowl with the New England Patriots.
A spokeswoman for Edwards said Tuesday the business failed “as a result of marketplace and other issues.”
Another high school teammate, Steve Berling, said he thought Bales got out of the business because he didn’t like seeing his clients lose money.
Army officials and a military expert indicated Tuesday that Bales’ dealings as an investment trader were unlikely to have come up as an issue during his enlistment. Detailed financial checks would be more likely if he needed a high security clearance.
John Pike of GlobalSecurity.org, an expert on defense policy, said the military doesn’t seem to closely track personal finances unless they are tied to a discipline problem or run-in with the law. He said the military runs credit checks and a national agency check on troops before they are given clearance to be deployed.
“If you can get a credit card, you can get a secret clearance,” Pike said. He said, though, that Bales’ issues as a broker probably would have kept him from qualifying for a top-secret clearance, not needed to be sent to war, or the types of assignments Bales was known to have had.
Bales’ wife Karilyn had complained about her finances on her blog over the past year. The couple had tried to sell their residence in Lake Tapps, Wash., for 20 percent less than they paid for it, and abandoned a home they owned in Auburn, Wash., about 10 miles away.
“They were not dependable,” said an unhappy Bob Baggett, their homeowners’ association president in Auburn. “When they left, there were vehicle parts left on the front yard … we’d given up on the owners.”
Edwards, who lives in Jacksonville, Fla., issued a statement of concern Tuesday about “one of my oldest and best friends.”
“I viewed him as a person with enormous integrity, courage and loyalty,” Edwards said.
— Copyright 2012 The Associated Press. Wagner, an AP business writer, reported from Washington. Contributing to this report were Jennifer Kay in Miami, Ann Sanner in Columbus, Ohio; Julie Carr-Smyth in Carroll, Ohio, Pauline Jelinek in Washington, John Milburn in Fort Leavenworth, Kan., Manuel Valdez in Seattle, Julie Watson in San Diego and researcher Julie Reed in New York.