Hedge-fund manager George Jarkesy said he didn't recall more than 800 times during questioning at the SEC about deceiving investors. A judge at the agency said he was so evasive his testimony was all but worthless.
A decade later, Jarkesy may have the last laugh.
The U.S. Supreme Court is now using his case to consider stripping the Securities and Exchange Commission of a key weapon in its arsenal — the ability to go before its in-house judges to seek multimillion-dollar penalties. The court hears arguments Wednesday with a ruling likely by June.
Jarkesy, a former Wall Street broker and television commentator, is the new face of a long-running effort to undercut what critics say is an unfair advantage the SEC holds when it tangles with alleged wrongdoers. The SEC uses its in-house system for hundreds of cases a year — even after scaling back in response to a 2018 loss at the Supreme Court.
Backed by Elon Musk and Mark Cuban, Jarkesy contends that defendants in SEC cases have a constitutional right to make their case to a federal jury. A win for Jarkesy would reduce the SEC's leverage to extract expensive settlements.
"The effect for defendants would be significant," said Nicolas Morgan, a lawyer with Paul Hastings and former SEC litigator who filed a friend-of-the-court brief for Musk, Cuban and three other business leaders who have clashed with the commission. "Potentially, you would see fewer defendants settle if they know they're going to be able to plead their case to a jury."
Depending on the court's reasoning, the case could also affect the Federal Trade Commission, which uses in-house judges as well.
Jarkesy in 2007 set up the first of two Houston-based funds that eventually raised $24 million from 120 investors. He became a conservative commentator on Fox Business News and CNBC, talking about the financial markets and government regulation.
His radio show was distributed in at least eight markets, giving him a forum to opine on politics as well as business. In one segment, he said the U.S. Civil War was driven by northern states' overtaxation and their need for money from the South.
'Evasive Manner'
It all came crashing down in 2013, when the SEC accused him of misleading investors about who served as the funds' prime broker and auditor and about their investment strategies and holdings.
Jarkesy testified during a 12-day hearing at the SEC's New York office in 2014. Administrative Law Judge Carol Fox Foelak was left unimpressed, saying he "generally testified in an evasive manner that did not provide any assurances of the reliability of his testimony."
He lost again when he appealed to the SEC's commissioners, who imposed almost $1 million in penalties on Jarkesy and his firm. The 5th U.S. Circuit Court of Appeals threw out the award, saying he was entitled to a jury trial, and the Biden administration turned to the Supreme Court.
