The Security and Exchange Commission on Friday accused New-York broker Thomas Belesis and Texas-based hedge fund manager George R. Jarkesy Jr. of defrauding investors after raising $30 million for two hedge funds ostensibly controlled by Jarkesy.
Jarkesy, a frequent media commentator, and his firm John Thomas Capital Management—since renamed Patriot28 LLC—allegedly inflated the value of the funds’ assets, leading to inaccurate share valuations and management fees.
Further, Jarkesy allegedly lied about the auditor and prime broker for the two funds, originally named John Thomas Bridge and Opportunity Fund LP I and John Thomas Bridge and Opportunity Fund LP II. The Texas manager is also accused of telling investors he was the sole decision-maker, when in fact, Belesis ran the show on occasion, according to the SEC.
Belesis—the owner of the broker-dealer John Thomas Financial— would occasionally direct some investments from the hedge funds into a company heavily supported by his firm, according to the SEC.
The partnership also allowed Belesis to talk Jarkesy into “showering excessive fees on John Thomas Financial,” the regulator says, strongly disputing Belesis’ representation that his broker-dealer was “independent.”
“Not only did [Jarkesy] falsify valuations and deceive investors about the value of their holdings, but he bent over backwards to enrich Belesis at the funds’ expense,” says Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Belesis in turn exploited the supposed independence of the funds to surreptitiously pull the strings on key decisions.”
Both men, as well as Jarkesy’s firm John Thomas Capital Management, stand accused of violating their fiduciary duty to clients, as well as securities law violations.