SEC Charges Houston-Based Hedge Fund Manager and Brokerage CEO with Securities Fraud
The Securities and Exchange Commission has charged a Houston-area
hedge fund manager, his firm, and a connected brokerage firm CEO with fraud in connection
to investments raised in two hedge funds: the John Thomas Bridge and Opportunity
Fund LP I and the John Thomas Bridge and Opportunity Fund LP II.
According to the SEC, George R. Jarkesy Jr., through his company John Thomas
Capital Management Group LLC (JTCM), launched the hedge funds in 2007
and 2009, respectively, with the help of Thomas Belesis.
The complaint alleged that Jarkesy solicited $30 million in investments
in the funds, and then allegedly steered millions of dollars in bloated
fees to Belesis and Belesis’ firm, John Thomas Financial, Inc. (JTF.)
Though the Funds and Belesis’s firm shared the same brand name, Jarkesy
and JTCM claimed to be wholly independent of JTF. The SEC has alleged,
however, that the Funds’ purported independence was nothing but
a scheme designed to defraud investors and protect Belesis.
“Notwithstanding representations that he was ‘responsible for
all of the investment decisions’ of the Funds, Jarkesy capitulated
to Belesis’ aggressive demands regarding certain investment decisions,”
alleged the complaint. “JTCM’s purported independence from
JTF was a sham designed to enrich Belesis at the expense of the Funds,
and to insulate him from future accusations of wrongdoing.”
In addition to misrepresenting the nature of the Funds' relationship
with JTF, Jarkesy has been accused of violating his fiduciary duties by
placing the interests of Belesis and JTF above the interest of the Funds.
“Jarkesy disregarded the basic standards to which all fund managers
are held,” said Andrew M. Calamari, Director of the SEC’s
New York Regional Office. “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.”
Belesis and JTF have been accused of aiding and abetting and of causing
Jarkesy and JTCM to violate securities laws. Disgorgement and financial
penalties will likely be sought against all parties. To learn more, access the full
SEC complaint against George Jarkesy here.