Ray Dirks, one of Wall Street's better-known boosters of small-cap stocks, resigned this week from his managing director's job at Sky Capital, a New York investment bank.

A source familiar with the situation says Sky Capital permitted Dirks to resign on Wednesday, but the firm probably would have demanded his resignation if he didn't leave of his own accord. Dirks' departure comes four months after the NASD filed an enforcement action alleging that the 69-year-old analyst and broker pumped up a handful of penny stocks while working at Dirks & Co., a now-defunct brokerage owned by his wife.

Regulators contend the couple failed to tell customers that they were making a market in stocks they were simultaneously praising in their in-house research. A hearing date for the NASD proceeding hasn't been set.

The investment bank confirmed Dirks no longer works at the firm. Sky Capital President Michael Recca declined to comment on the reasons behind Dirks' departure.

Dirks could not be reached for comment at his home. His lawyer, Joseph Tandet, declined to discuss the reasons behind Dirks' resignation.

Before he became an advocate -- some would say a tout -- for small cap-stocks, Dirks was best known for battling the Securities and Exchange Commission all the way to the U.S. Supreme Court on an insider trading charge -- and winning.

In that battle, the SEC charged Dirks, then an insurance industry analyst, with insider trading for quietly telling some of his big brokerage clients about a massive accounting fraud at a company called Equity Funding. The Supreme Court, in a landmark 1983 decision, sided with Dirks and ruled he was only doing his job as an analyst.

But since then, Dirks has been often associated with the stocks of dubious merits.

Most recently, he was the contact person for Sky Capital on the initial public offering for Vaso Active Pharmaceuticals, a tiny over-the-counter drug manufacturer that was one of the hottest stocks of the year before the SEC suspended trading in its share earlier this month.

Sky Capital, a three-year-old investment firm with offices in New York and London, was all set to bring the Vaso Active deal to market last fall but at the last minute the NASD objected. Sources say the securities industry's self-regulatory organization told Vaso Active to find a new underwriter because Sky Capital had no prior experience working on an IPO.

Kashner Davidson, a small Florida brokerage, subsequently replaced Sky Capital on the IPO. On April 1, the SEC suspended trading in shares of Vaso Active after finding it may have made misleading statements about some of its products, including an Athlete's Foot treatment called Termin8.

Matt Meister, Kashner's president, declined to comment on the trading suspension.

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