WASHINGTON (CN) - A Houston-based hedge fund manager who hosted a radio talk show fraudulently raised $30 million and sent "bloated fees" to the CEO of a brokerage firm he was in cahoots with, the SEC claims in a cease-and-desist order.
The SEC filed the administrative order against two men and their companies, claiming they "worked closely" together in the fraud.
George Jarkesy ran John Thomas Capital Management (JTCM) in Houston, since renamed Patriot28 LLC.
Jarkesy, 38, of Tomball, Texas, ran all aspects of JTCM and its two hedge funds, the John Thomas Bridge and Opportunity Funds I and II, the SEC said in its order.
"Jarkesy is a frequent media commentator, a radio talk show host, and the founder of the National Eagles and Angels Association, an organization designed to introduce
investors to start-up companies in need of financing," according to the 17-page cease and desist order.
The SEC said in a statement that Jarkesy "worked closely with Thomas Belesis to launch two hedge funds that raised $30 million from investors."
Anastasios "Tommy" Belesis, 38, of New York City, is the founder and CEO of defendant John Thomas Financial (JTF), the SEC says.
"Respondent JTF is a broker-dealer registered with the Commission and a member of the Financial Industry Regulatory Authority ('FINRA'). Approximately 125 registered representatives are associated with the firm. JTF is wholly owned by ATB Holding Company LLC, which is controlled by Belesis. JTF offers brokerage and investment services, investment banking services and private wealth management," according to the SEC order.
The SEC said in a statement announcing its order that Jarkesy and JTCM "inflated valuations of the funds' assets, causing the value of investors' shares to be overstated and his management and incentive fees to be increased. Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds' auditor and prime broker. Meanwhile, although they shared the same 'John Thomas' brand name, Jarkesy's firm and Belesis' firm John Thomas Financial were portrayed as wholly independent. Jarkesy led investors to believe that as manager of the funds, he was solely responsible for all investment decisions. However, Belesis sometimes supplanted Jarkesy as the decision maker and directed some investments from the hedge funds into a company in which his firm was heavily invested. Belesis also bullied Jarkesy into showering excessive fees on John Thomas Financial even in instances where the firm had done virtually nothing to earn them."
The director of the SEC's New York Regional Office said in the statement: "Jarkesy disregarded the basic standards to which all fund managers are held. Not only did he falsify valuations and deceive investors about the value of their holdings, but he bent over backwards to enrich Belesis at the funds' expense. Belesis in turn exploited the supposed independence of the funds to surreptitiously pull the strings on key decisions."
The SEC said in its statement: "Jarkesy used fund assets to hire multiple stock promoters in 2010 and 2011 to create an artificial and unsustainable spike in the price of two microcap stocks in which the funds were heavily invested. As a result of these efforts, the funds recorded temporary gains in the value of the microcap stocks that Jarkesy used to mask the write-down of other more illiquid holdings of the funds."
The cease and desist order cites some brazen emails between Jarkesy and Belesis, in a section titled, "Jarkesy and JTCM Diverted the Funds' Money to Enrich Belesis and JTF":
"In breach of his fiduciary duty to the Funds, Jarkesy, through his role at JTCM, actively negotiated fees on behalf of JTF and Belesis in connection with the Funds' activities, to the detriment of the Funds.
"Jarkesy used his role as manager of the Funds to enrich Belesis and JTF, and kept an appreciative Belesis apprised of his efforts. For example, Jarkesy giddily wrote
to Belesis in March 2010: '[W]e are all going to make so much f[...]ing money this year, the clients of John Thomas are going to have a banner year. ... Write yourself a check and get ready to cash it $45 million.' Belesis replied, 'Sounds great buddy, look forward to it. ... Lol [laughing out loud],' to which Jarkesy responded, 'Your [sic] going to not stop laughing when you are liquidating everyones [sic] stock.'
"On another occasion, after Belesis complained that Jarkesy was not securing sufficient fees for JTF in February 2009, Jarkesy responded that 'we will always try to get you as much as possible, Everytime [sic] without exception!'
"Overall, Jarkesy's allegiance to Belesis and JTF cost the Funds significant sums of money, directly or indirectly, for placement fees, loans to small companies that then used the money to pay fees to JTF, and for unearned bridge loan fees JTF received for doing no work." (Brackets and ellipses in SEC order.)
The SEC wants the defendants to appear before it and answer some questions.