(Adds background on SEC action on Belesis in fifth paragraph.)
Jan. 30 (Bloomberg) -- A Houston hedge-fund manager facing U.S. Securities and Exchange Commission claims that he defrauded investors by steering bloated fees to the John Thomas Financial Inc. brokerage sued to block an agency hearing.
George Jarkesy Jr., who according to the complaint could be fined $100 million and barred for life from the securities industry, said if the SEC’s administrative proceeding is allowed to go forward it will violate his rights to due process and equal protection under the U.S. Constitution.
By publishing findings that drew conclusions about Jarkesy and Patriot28 LLC, formerly known as John Thomas Capital Management LLC, “in advance of the adjudication and without permitting plaintiffs to present any evidence or defenses, the SEC has removed all doubt about its ability to serve as a fair tribunal,” Jarkesy said in a complaint filed yesterday in federal court in Washington.
The SEC brought its claims against Jarkesy and the founder and chief executive officer of John Thomas, Anastasios “Tommy” Belesis, in March, saying they had defrauded hedge fund investors. Belesis settled the allegations against him in December by agreeing to be banned from the securities industry with the option of applying for reinstatement after a year.
Belesis and John Thomas Financial were each ordered to pay $500,000.
Jarkesy, a frequent media commentator and talk show host, led investors to believe that as manager of the funds he was solely responsible for all investment decisions, the SEC said in a statement in March. Belesis, in fact, sometimes replaced Jarkesy in running the funds and funneled money from them to a company he had an interest in, while also “bullying” Jarkesy into paying substantial, unjustified fees to John Thomas Financial, the SEC said.
Bloomberg News reported on Feb. 25 that Belesis, who founded John Thomas in 2007, had raised millions of dollars for companies with about 200 brokers in a boiler room across the street from the New York Stock Exchange, where trainees stood as long as 14 hours a day barking memorized sales pitches for as little as $300 a week.
Jarkesy and his investment management company, Patriot28 LLC, were irreparably harmed by the SEC’s publication of information from the investigation of Belesis, according to the complaint.
The SEC also denied Jarkesy equal protection under the law by charging him in an administrative proceeding instead of in federal court where protections such as trial by jury and the ability to bring counterclaims are available, according to the filing.
In support of that argument, lawyers for Jarkesy included a list of nine SEC cases they said were similar to his and brought in federal court.
The commission chooses whether to handle its allegations administratively or in federal court “subject to no standard imposed by Congress or even an SEC rule or established practice,” Jarkesy said in the complaint.
Jarkesy asked U.S. District Judge Beryl Howell to halt a hearing on his case slated for Feb. 3.
John Nester, a spokesman for the SEC, declined to comment on the case.
The case is Jarkesy v. U.S. Securities and Exchange Commission, 14-cv-114, U.S. District Court, District of Columbia, (Washington).
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--With assistance from Dave Michaels in Washington. Editors: Fred Strasser, Charles Carter