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Alternative Market Briefing

SEC charges hedge fund manager and brokerage CEO with fraud

Monday, March 25, 2013

Bailey McCann, Opalesque New York: The Securities and Exchange Commission today announced charges against a Houston-based hedge fund manager and his firm accused of defrauding investors in two hedge funds and steering bloated fees to a brokerage firm CEO who also is charged in the SEC’s case. According to the regulator, George R. Jarkesy Jr., worked closely with Thomas Belesis to launch two hedge funds that raised $30m from investors for his firm John Thomas Capital Management (since renamed Patriot28 LLC). To do this he allegedly, 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 complaint, Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds’ auditor and prime broker. Jarkesy told investors that he and Belesis were wholly independent from each other even while Belesis was sometimes making investment decisions for Jarksey. The SEC further alleges that 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.

"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 ......................

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