The company later went public, before filing for bankruptcy protection. The lawsuit was dropped; 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, regdwulatory 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.
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.
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.
Contact the reporters at http://www.twitter.com/dansewell and http://www.twitter.com/wagnerreports
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.