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SEC Charges Tommy Belesis, John Thomas Financial, Inc., and Cohorts George Jarkesy, Jr. and John Thomas Capital Management Group, LLC

The Securities and Exchange Commission recently announced charges against against John Thomas Financial, an independent Wall Street brokerage firm owned by flamboyant founder and CEO Anastasios “Tommy” Belesis (“Belesis”). The SEC also brought charges against Houston-based hedge fund manager George Jarkesy, Jr. (“Jarkesy”), and his firm, John Thomas Capital Management Group, LLC (since renamed Patriot28 LLC). The charges center upon overstated valuations of two hedge funds, John Thomas Bridge and Opportunity Fund LP I and John Thomas Bridge and Opportunity Fund LP II, and various misrepresentations regarding management of the Funds. The Funds’ assets under management peaked at approximately $30 million at the end of 2011.

Jarkesy launched the two Funds in 2007 and 2009, and they invested in three asset classes: bridge loans to start-up companies, equity investments principally in microcap companies, and life settlement policies. Jarkesy and his firm were the Funds’ manager, while Belesis and his firm were the Funds’ placement agent. They portrayed themselves as entirely independent of one another, despite using the common brand name “John Thomas.”

Jarkesy represented that as the manager of the funds he alone was responsible for all investment decisions, yet the SEC found that “Jarkesy capitulated to Belesis’ aggressive demands regarding certain investment decisions,” and directed some investments from the hedge funds into a company in which Belesis’ firm was heavily invested. Jarkesy also submitted to Belesis’ demands for excessive fees, even where little was done to earn fees. For example, in February 2009, Belesis angrily complained via e-mail that Jarkesy was not steering enough money to John Thomas Financial, and Jarkesy responded that “we will always try to get you as much as possible, Everytime [sic] without exception!” On another occasion, Jarkesy reassured Belesis that “[n]obody gets access to Tommy until they make us money!!!!!”

Jarkesy and his firm also inflated valuations of the funds’ assets, thereby increasing his management and incentive fees, which were deducted from the funds based on the value of the funds. In addition, Jarkesy used fund assets to hire multiple stock promoters in 2010 and 2011 to create an temporary, false spike in the price of two microcap stocks in which the Funds were heavily invested. As a result, the Funds saw temporary gains in the value of the microcap stocks, which Jarkesy used to mask the write-down of other more illiquid holdings 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.”

Jarkesy, 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, also falsely claimed that prominent service providers such as KPMG and Deutsche Bank worked with the funds.

Belesis regularly has appeared on cable business-news shows, had a walk-on part as a banker in Oliver Stone’s 2010 movie, “Wall Street: Money Never Sleeps,” and received the Bronx GOP Man of the Year Award in 2009 from Rudy Giuliani. The New York Post first reported in early February that John Thomas Financial, was being investigated by the FBI, the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. In addition, Belesis’ FINRA records show he received a Wells Notice from FINRA on January 10, 2013.

The SEC’s order charges that Jarkesy and John Thomas Capital Management violated and aided and abetted violations of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5, and violated Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8.

The SEC’s order further charges that Belesis and John Thomas Financial aided and abetted and caused Jarkesy’s and John Thomas Capital Management’s violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8. The administrative proceedings will determine what, if any, remedial action is appropriate in the public interest against Jarkesy, John Thomas Capital Management, Belesis, and John Thomas Financial including disgorgement and financial penalties.

If you were a client of Belesis, John Thomas Financial, Jarkesy, or John Thomas Capital Management, and suffered investment losses, please contact Sonn|Erez to explore your legal options. Sonn|Erez is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 866-372-8311 or complete our “contact form.”