Despite a history of securities violations, shady business practices and millions in investor losses, shoot-from-the-hip broker John Joseph Hurry is trying to take down FINRA, the sheriff policing his industry. A tale of good, bad and ugly behavior.
By Sergei Klebnikov and Matt Schifrin, Forbes Staff
This past summer, in three separate decisions, the Supreme Court delivered a gut punch to federal regulators, including the Securities and Exchange Commission, by calling into question their enforcement powers. Now, a shadowy operator with a checkered history is waging a legal battle that could end with the high court hobbling the organization that serves as U.S. investors’ first line of defense against crooked brokers and market shenanigans: the Washington, D.C.–based Financial Industry Regulatory Authority (Finra). Firna is a private, not-for-profit entity run and funded by the same securities industry it is charged with licensing and policing. Such self-regulatory organizations (SROs) have been a part of U.S. markets since the Philadelphia Stock Exchange was formed in 1790. When Congress created the SEC in 1934, it preserved a key role for SROs while putting them under the new federal agency’s thumb.
It’s hard to overstate how important Finra is to the securities business. It licenses and oversees 628,000 brokers and 3,300 firms including Charles Schwab, Merrill Lynch and Fidelity. It has 4,300 employees and a budget (mostly funded by its members) of $1.5 billion—rivaling the SEC’s 5,000 employees and $2.2 billion budget. Last year Finra received 11,000 investor complaints, barred or suspended 435 individuals and nine firms from the industry and referred 623 fraud and insider trading cases to the feds for prosecution. Finra is the frontline, but it is not the last word—because it’s a private organization, its disciplinary decisions can be appealed to the SEC and ultimately to the courts.
Two obscure securities firms, a Utah-based clearing operation called Alpine Securities and an Arizona brokerage, Scottsdale Capital Advisors, are taking full advantage of that structure. The two companies have brought a new and potentially lethal legal weapon to their enforcement battle with Finra: a challenge to its powers on constitutional grounds. Both outfits are owned by John Joseph Hurry, a 57-year old financial minnow who has morphed into Finra’s white whale. For years it has tried unsuccessfully to shut him down.
Finra first sought to bar Hurry from the securities business in connection with a purported 2014 pump-and-dump scheme involving microcap stocks, Cayman Island corporations and brokerage accounts in Belize and Panama. Money laundering was suspec-ted. Hurry denied wrongdoing and the SEC subsequently overturned his banishment, largely because of Finra’s procedural errors. But make no mistake: The SEC is no fan of Hurry’s operations and itself has pursued multiple enforcement actions. In 2019, for example, a federal judge imposed a $12 million civil penalty on Alpine for “illegal conduct on a massive scale” after finding the SEC had proved at least 2,720 instances in which the firm ignored red flags when filing required “suspicious activity reports.”
Finra’s current attempt to shut Alpine down stems from allegations that it stole from its customers in 2019 by charging outrageous fees and making unauthorized trades. Hurry and his lawyers have crafted an ingenious defense: They want Finra declared unconstitutional. They say it lacks transparency and, among other faults, is exercising executive powers without its officials being accountable to the president, as required by Article II of the Constitution.
Though similar anti-SRO arguments have been rejected by courts in the past, Team Hurry now has the judicial wind at their back. In July 2023, a three-judge panel of the U.S. Court of Appeals for the District of Columbia voted two to one to enjoin Finra from shutting down Alpine while the appeals court considered the constitutional questions. One judge favoring this stay of execution was Trump appointee Justin Walker, who wrote that “Alpine has raised a serious argument that Finra impermissibly exercises significant executive power.”
A three-judge panel, consisting of Walker and two Obama appointees, heard arguments in February and could rule any day. Whatever it decides, the issue could easily end up before the Supreme Court—the same court that in June upended the status quo by deciding that the SEC can’t use its own administrative law judges to adjudicate cases that seek civil penalties for securities fraud. That decades-old practice, a 6-to-3 majority ruled in SEC v. Jarkesy, deprives defendants of their Seventh Amendment right to trial by jury in federal civil cases.
“Regulatory agencies have been setting policy and executing law in the United States, and a lot of it has become unaccountable,” says former Trump Attorney General William P. Barr. Last year he signed an amicus brief on behalf of the anti-regulatory American Free Enterprise Chamber of Commerce supporting Alpine’s case and effectively calling for Finra’s dissolution. When asked what he knew about Alpine Securities, Scottsdale Capital or John Hurry—his strange-bedfellow allies in the fight against Finra—Barr replied, “I don’t know them.”
Ignorance is bliss. Over the past decade, Hurry’s firms have faced an unending stream of serious Finra and SEC char-ges. The firms specialize in the netherworld of unregistered securities, microcap public companies exempt from normal SEC disclosures, whose shares typically trade over the counter in what used to be known as “pink sheets.” Accor-ding to Scottsdale Capital’s website, its expertise is in “depositing and liquidating” stock—industry jargon for what are often pump-and-dump schemes.
Consider the first unsuccessful expulsion case Finra brought against Hurry and his firms.
In 2014, his Scottsdale Capital liquidated 74 million shares of three microcaps, Neuro-Hitech Inc., Voip Pal.com and Orofino Gold Corp. These shares found their way to Scottsdale by way of an unregulated Carib-bean firm he also controlled, Cayman Securities Clearing and Trading. In 2015, Finra alleged CSCT was an “attractive intermediary” for shady individuals wanting to offload millions of unregistered penny-stock shares through foreign financial institutions. According to case filings, CSCT had four customers in Belize and Panama, and these customers had a total of 27 sub-accounts. The real sellers of the stock remain a mystery.
Shape-shifting Neuro-Hitech started life as a publicly traded shell company called Northern Way Resources. In a June 2005 SEC filing ahead of a sale of 4.6 million shares, the Vancouver, British Columbia–based enterprise reported that it had just $20,000 in cash on hand and was looking for gold and palladium near Sudbury, Ontario. Within six months of going public, it did a reverse merger with a New York biotech. Now its focus was on commercializing Huperzine A, a drug used in China to treat Alzheimer’s, and it renamed itself Neuro-Hitech Pharmaceuticals. After years of losses, it moved to Florida in 2008 and began producing pseudoephedrine, a decongestant that is also a key ingredient in methamphetamine. That year revenue soared to $4.1 million but losses grew even more, to $10.7 million. In July 2009 it success-fully petitioned to become exempt from SEC registration and disclosures because it had only 123 stockholders. That group owned 31.5 million shares, priced around 3 cents.
By the time Hurry got involved around 2014, Neuro-Hitech’s operations had been gutted. It had just $107 in its checking and savings accounts and annual losses of more than $300,000, according to filings with OTCMarkets.com. Simultaneously, the number of outstanding shares had risen magically to nearly 1 billion.
Enter a mysterious Texan named Thomas Collins. In court documents, Finra questioned Collins’ existence, even though his signature adorns Hurry’s company documents. Collins first appeared as a consultant to the company in 2012; he received an IOU of $10,000 for his services. In 2013, he conver-ted 90% of this note to 90 million shares of Neuro-Hitech—at an implied value of one-hundredth of a penny per share. Before these shares were even awarded, he pledged 60 million of them to three firms in Belize who, according to Finra’s allegations, happened to be clients of Hurry’s Cayman brokerage operation, CSCT. In early 2014, Hurry’s Central American clients deposited those 60 million shares at CSCT, which in turn sent them north to his Scotts-dale Capital—the firm that specializes in “depositing and liquidating” penny stocks.
By then, Neuro-Hitech had conveniently shifted its business plan yet again. Now it was into oil and gas exploration, just as crude prices were cresting above $100 a barrel and ISIS was expanding in Iraq and Syria. In early 2014, Neuro-Hitech issued a flurry of press releases from Texas about wells it had acquired near Fort Worth that were now producing oil. Promotional penny-stock newsletters began touting that the company and the nearly worthless Neuro-Hitech shares that the mysterious Mr. Collins had acquired for $9,000 a few months prior were sizzling hot. Neuro-Hitech rose from $0.0125 in February 2014 to a high of $0.055 by mid-March, potentially generating millions in trading profits. According to Finra records, Scottsdale promptly wired $263,000 in proceeds down to its Central American clients. A month later shares had fallen more than 70%.
According to Finra, Hurry’s unregulated Cayman Island operation, CSCT, generated more than $1.7 million in trading proceeds from the sale for its foreign customers, the purported owners of the Neuro-Hitech stock and the two other penny stocks mentioned in the case. Both Finra’s hearing officer and its internal appeals board—the National Adjudicatory Council—ruled that Hurry engaged in unethical conduct using his foreign brokerage firm to distance his U.S. brokerages from illegal offshore liquidations. They fined Scottsdale $1.5 million and barred Hurry from the securities business. But critically, the NAC used a different legal theory than Finra.
“Both Finra and then the NAC found Hurry liable, but they’d approached the case differently, so when Hurry appealed the NAC’s decision to the SEC, the SEC found it had no choice but to let Hurry off the hook because Finra and NAC had advanced different, and inconsistent, theories of the case,” says Florida attorney Brenda Hamilton, who runs the website SecuritiesLawyer101.com.
In 2021, the SEC overturned the punishment, citing that discrepancy and insufficient evidence that Hurry was directly involved in the Scottsdale firm’s alleged violations.
Adds Hamilton, “How is Hurry the Teflon man?”
Police Thyself
There are hundreds of self-regulating organizations in the U.S. On the plus side, they know the issues more intimately than a distant federal agency in D.C. On the negative side, they’re more prone to being manipulated by their members. Here are 10 of the most prominent.
As Finra’s number one enemy, Hurry keeps a low profile. There are virtually no photos of him online. He spoke to Forbes but also delivered this warning: “Make sure you have your facts straight. Other journalists have come after me and I didn’t know how to deal with it, but I do now.” (He has sued two media organizations who wrote negative stories about him, losing both cases.) His New York lawyer, Maranda Fritz, says he is being unfairly targeted because his focus is microcaps. “John Hurry is someone who fights back—Finra enforcement folks view him therefore as a villain,” she adds.
Finra declined to comment for this story—perhaps spooked by the pending court cases—confirming only that “John Joseph Hurry is associated with Alpine Securities Corporation and Scottsdale Capi-tal Advisors Corporation, which are currently litigating against Finra.”
Hurry was born in Fairfield, California, in 1966. His mother was a teacher, his father in the military. He earned a finance degree and, in 1992, an MBA from the University of Northern Arizona. Over the next decade he worked at no fewer than six firms, including Edward Jones and Prudential Securities. He also did stints at New York City’s Cortland Capital and Merit Capital of Westport, Connecticut, both of which were plagued by regulatory violations. His record as a broker is clean, according to Finra. His legal issues started after he moved to Arizona, founded Scottsdale Capital Advisors in 2002 and started making serious money.
Hurry enjoys a lavish lifestyle. Besides a five-bedroom, six-bath, 4,760-square-foot Lake Tahoe retreat in income-tax-free Nevada that he says is his primary residence, he owns a seven-bedroom, eight-bath, 8,400-square-foot mansion in Phoenix’s most exclusive suburb, Paradise Valley. Then there’s the 5,000-square-foot beachfront home in Pompano Beach, Florida, recently listed to rent for $60,000 per month. Through a maze of dozens of trusts and LLCs, he owns or has owned businesses and real estate in Arizona, Nevada, California and Florida. Among them: a Glendale, California, Hyundai dealership, a building on the Newport Beach boardwalk and a vaping company called Smokeless Inc. Friends describe him as generous, always eager to lend them one of his many cars or offer a lift on his private Cessna Citation jet.
His latest legal battle—the one that’s existential for Finra—stems from actions Alpine took starting in 2018, as its regulatory problems were creating financial pressure. As part of a slew of fee hikes, it raised customer account fees from $100 per year to $5,000 per month—a 60,000% increase. This caused huge debts to mount in hundreds of client accounts, which Alpine satisfied by selling off their holdings. Alpine made $950,000 this way in June 2019 alone. Moreover, if a customer’s account had $1,500 or less of securities in it, Alpine deemed it “worthless,” closed the account and sold the shares for pennies to one of its own accounts. Only then, Finra asserts, did Alpine send letters (backdated by nearly two weeks) informing customers that their accounts had been closed. It also shut its Salt Lake City office and stopped answering phone calls from angry customers.
Says Hurry: “The firm had to increase its fees to cover escalating regulatory cost and risk, and fully disclosed those fees for months, but the firm did a bad job of communica-ting when people tried to call. We had a CEO who wasn’t as diligent as he should’ve been.”
Finra further alleges that while Alpine was draining its customers, its owners were draining the firm. For example, Alpine amended a $5 million line-of-credit agreement with a Hurry-owned affiliate so that it carried a $400,000-per-month fee and a 120% annual interest rate on any funds borrowed. All told, Finra says, some $2.8 million in capital was pulled from Alpine in early 2019.
In 2022, the SEC brought a related civil enforcement case in Nevada federal court alleging that Alpine and two of its managers violated securities law when, in May and June 2019, they declared 545 customer accounts “abandoned” and without authorization transferred $54 million in securities out of them to accounts under Alpine’s control. Only after customers complained and Finra started investiga-ting, the SEC says, were those securities returned. A judge has denied Alpine’s motion to dismiss that case, which Alpine says duplicates Finra’s enforcement efforts and is unwarranted because the securities were returned. The case is in the pretrial stage.
Though Hurry and his wife, Justine, are owners of and control his securities firms, he insists that he began stepping back from the broker-dealer business in 2011, no longer dealing with clients or making trades. “I’ve had tens of thousands of customers that I’ve helped over the last 30 years,” he says. “I have no marks on my license, and all of a sudden I’m a bad guy?” The problem, he says, is regulators “used to come in and tell you what to correct. Now they come in ready to build a case.”
Despite Hurry’s legal wins and recent support from the likes of former U.S. Attorney General Barr, the future of his business is shaky at best. Last November, another self-regulatory organization, Depository rust and Clearing Corporation (DTCC), revoked Alpine’s membership for failing to have adequate capital, meaning it wouldn’t be able to clear trades. Hurry insists he offered a plan to put up the capital. The SEC stayed DTCC’s action pending appeal, so Alpine is still in business.
Hurry says Scottsdale, which is currently dormant, is exploring new avenues. It may not be easy. Last October, the state of Nevada refused Hurry a license to open a wealth management firm called Advisors Capital Trust, saying it doubted “the officers and directors of the trust have the experience and sufficient trustworthiness, integrity and reputation to justify a belief that the proposed trust company will operate in compliance with the law.”
Finra isn’t out of the woods either, however. “If Alpine were to get its financial legs cut out from under it, there are enough interested people here that you would probably find [someone] to take this case to the Supreme Court just for the value of the issue and the platform, potentially,” says Benjamin Edwards, a professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas.
That’s terrible news for mighty Finra, a righteous Goliath seemingly doomed to fight for its life against a tiny, unscrupulous David.
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