FRAUD?

John Thomas’s Belesis Aided Hedge-Fund Fraud, SEC Claims

Anastasios “Tommy” Belesis, founder of John Thomas Financial Inc., and Houston radio host George Jarkesy defrauded investors in two hedge funds, the U.S. Securities and Exchange Commission said.

The two men, both 38, told investors the funds were independent from the brokerage then steered excessive fees to Belesis’s New York-based firm, the SEC said yesterday in a statement. The regulator said it started administrative proceedings against Belesis, Jarkesy, who managed the funds, and their firms. They could face punishments including disgorgement and financial penalties, the SEC said.

Belesis worked with Jarkesy to raise two funds in 2007 and 2009, which peaked at $30 million under management, telling investors they would invest in microcap stocks, bridge loans and life-insurance policies, the SEC said. Jarkesy inflated the value of investments in disclosures and hired stock promoters to boost the price of shares, while Belesis and John Thomas Financial “willfully aided, abetted and caused” the hedge funds’ violations, according to the regulator.

“Jarkesy disregarded the basic standards to which all fund managers are held,” Andrew M. Calamari, director of the SEC’s New York regional office, said in the statement. “Not only did he falsify valuations and deceive investors about the value of their holdings, but he bent over backwards to enrich Belesis at the funds’ expense.”

‘Belligerent Manner’

Belesis “intends to defend himself vigorously against these allegations,” said David Pitts of Argot Partners LLC, a spokesman for the brokerage chief. Jason Lewis, Jarkesy’s lawyer at Locke Lord LLP in Dallas, said his client denies the allegations.

Bloomberg News reported on Feb. 25 that Belesis, who founded John Thomas in 2007, has 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 stand as long as 14 hours a day barking memorized sales pitches for as little as $300 a week. The bald, muscular executive has built a public persona with appearances on business television, endorsements from celebrities and a role in the movie “Wall Street: Money Never Sleeps.”

The SEC said in a complaint yesterday that Belesis repeatedly pushed Jarkesy for more fees, in a “profane and belligerent manner,” and tried to make the funds invest in companies his firm had interests in. On one occasion cited by the SEC, after Belesis yelled at the fund manager, Jarkesy tried to reassure him by saying in an e-mail: “We will always try to get you as much as possible, Everytime without exception!”

120 Investors

The hedge funds, called John Thomas Bridge and Opportunity Fund LP I and II, have about 120 investors, the SEC said. The funds listed inflated valuations for their holdings on monthly statements, which were the basis for calculating Jarkesy’s fees, according to the regulators.

The Financial Industry Regulatory Authority told Belesis last month he may face disciplinary action on a claim that he artificially inflated the price of a stock. A former John Thomas employee said in last month’s Bloomberg story that the regulator’s investigators had asked him about the brokerage’s trading in America West Resources Inc. ( AWSRQ )

Jarkesy was a director of America West until last year, according to a May regulatory filing by the Salt Lake City-based coal company. The Bridge and Opportunity funds lent $1.7 million to the company in 2010, the filing says. America West filed for bankruptcy last month.

‘Inconsequential Work’

Jarkesy negotiated arrangements in which companies would borrow money from the funds and divert some of the money to John Thomas as fees, the SEC said. The companies weren’t identified in the complaint.

From 2008 to 2010, John Thomas was paid $488,750 in fees for four bridge loans, including two for which it did “nearly inconsequential work,” according to the regulators. Jarkesy and his firm also paid John Thomas $741,000 in brokerage commissions and about $2.5 million in placement fees, the SEC said.

Jarkesy hosts a radio show that focuses on conservative politics and airs in Houston, Dallas, Atlanta, Miami, Minneapolis and San Francisco, said Charles Mefferd, vice president of operations for the Salem Radio Network, which distributes Jarkesy’s show. He broadcast last week from the Conservative Political Action Conference, an annual gathering of grassroots conservatives in Washington.

To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net; Dave Michaels in Washington at dmichaels5@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net