The Securities and Exchange Commission on Friday charged a Houston-based hedge fund manager, George Jarkesy Jr., and his firm, John Thomas Capital Management, of defrauding investors in two hedge funds and steering bloated fees to Thomas Belesis, CEO of John Thomas Financial.
Belesis, who appeared in the film Wall Street 2: Money Never Sleeps, also is charged in the SEC's case.
An investigation by the SEC's Enforcement Division found that Jarkesy worked closely with Belesis to launch two hedge funds that raised $30 million from investors.
Jarkesy and his firm, John Thomas Capital Management (since renamed Patriot28), inflated valuations of the funds' assets, causing the value of investors' shares to be overstated and his management and incentive fees to be increased, according to the SEC. Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds' auditor and prime broker, the SEC says.
Meanwhile, the SEC says that although they shared the same John Thomas brand name, Jarkesy's firm and Belesis' firm 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, the SEC says, "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."
