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UNITED STATES of AMERICA Before the SECURITIES and EXCHANGE COMMISSION UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION ADMINISTRATIVE PROCEEDING File No. 3-15255 In the Matter of JOHN THOMAS CAPITAL MANAGEMENT GROUP, LLC, d/b/a PATRIOT28, LLC, GEORGE R. JARKESY JR., JOHN THOMAS FINANCIAL, INC., ANASTASIOS "TOMMY' BELESIS, Respondents. THE DIVISION'S RESPONSE TO RESPONDENTS' OBJECTIONS The Division of Enforcement("Division") submits the followingresponse to the Objections to Administrative Proceedings ("Objections") filedby Respondents George R. Jarkesy Jr. and John Thomas Capital Management Group, LLC d/b/a/ Patriot 28, LLC (collectively "Respondents"). The Division fullyincorporates its previously filedsubmissions as referencedherein and this document provides only a summary of its response. As a preliminary matter, however, the Division notes that many of Respondents' objections were previously addressed and rejected by the Commission in its orders dated February 20, 2015 (Denying Motion to Stay Administrative Proceedings), October 16, 2014 (denying interlocutory review with respect to Respondents' motion fororder directing alternativeprocedure forfiling, service and publication of initial decision), January 28, 2014 (denying petition forinterlocutory review) and December 6, 2013 ( denying petition forinterlocutory review). While the Commission may have vacated all prior orders in this matter, there is nothing in the Objections that lead to the conclusion that the Commission's prior rulings were in error. Second, many of the "objections" asserted by Respondents do not relate at all to the currentproceeding that is scheduled to commence on March 25, 2019, but rather relate to rulings previously made by ALJ Foelak, including the initial decision dated October 17, 2014. As the Commission'sAugust 22, 2018 Order (In re: Pending Administrative Proceedings) explicitly states, going forwardthe ALJ "shall not give weight to or otherwise presume the correctnessof any prior opinions, orders, or rulings in this matter". As Respondents will have ample opportunity to re-litigate the issues where they were previously unsuccessful,objecting to ALJ Foelak's rulings is inappropriate. RESPONDENTS' OBJECTION 1 -- PREJUDGMENT Respondents object to the proceeding, arguing that the Commission prejudged the case against them by making findingsof factconcern ing them in its settlement with co-Respondent Anastasios Belesis ("Belesis"). This argument was fullyaddressed in the Division's Opposition Brief filedon January 8, 2014 (attached hereto as Exhibit A and incorporated herein) at pp. 4-7 and in the Division's Opening and Response Brief filedon March 13, 2015 ( attached hereto as Exhibit B and incorporated herein) at pp.6-11. In summary, there was no pre-judgment as the Commission's December 5, 2013 Order specifically said that the findingstherein were "not binding on any other person or entity in this or any other proceeding." In its January 28, 2014 Order, the Commission denied Respondents' Motion Petition forInterlocutory Appeal, stating, in part, that the "Commission has rejected arguments similar to those raised by JTCM and Jarkesy in an unbroken line of decisions.... In particular, the Commission has determined previously that no prejudgment of a non-settling respondent's case occurs especially when-as took place here-the order accepting an offerof settlement 'expressly state[s] that it was not binding on 2 other [non-settling] respondents.' Any decision that the Commission makes as to JTCM and Jarkesy will be 'based solely on the record' adduced beforethe law judge and will 'in no way [be] influencedby our findingsas to [ JTF and Belesis] based on [their] offer of settlement."' The Commission again rejected Respondents' argument in its October 16, 2014 Order. While the Commission may have vacated these orders, Respondents provide no reason in their Objections or in their Opening Appellate Brief to the Commission (Exhibit A attached to the Objections) to suggest why the Commission's reasoning was erroneous. RESPONDENTS' OBJECTION 2 -- IMPROPER DELEGATION Respondents object to the proceeding arguing that the authority given to the Commission to choose the forumfor enforcement actions is an improper Congressional delegation of legislative authority to the Commission because Congress did not establish an "intelligible principle" to the Commission forhow to choose the forum. This argument is fullyaddressed in the Division's Opening Brief (Exhibit B hereto) at pp. 18-24. In summary, this objection is faultyas the relevant provisions of Dodd-Frank do not constitute a delegation of legislative authority because when deciding whether to bring an action in federaldistrict court or in an administrative proceeding the Commission is not acting in a legislative capacity. Nor does the factthat Congress enacted a statutory scheme allowing the Commission to choose the forumin which to bring an enforcementaction constitute a delegation of legislative authority. RESPONDENTS' OBJECTION 3-- VIOLATION OF 14TH AMENDMENT Respondents object to the proceeding arguing that the Division violated Respondents' Equal Protection rights by choosing to pursue the administrative proceeding in lieu of a district 3 court proceeding denying Respondents the right to a jury trial and also by treating Respondents differentlythan others similarly situated ("class of one" argument). This argument is fully addressed in the Division's Opening Brief (Exhibit B hereto) at pp. 24-27. In summary, these objections are faultybecause the United States Supreme Court held in Atlas Roofing Co. v. Occupational Safety& Health Review Commission, 430 U.S. 442 (1977) that the use of administrative proceedings that lack juries does not violate the Seventh Amendment. Following Atlas Roofing, the Commission has rejected claims that administrative proceedings violate the Seventh Amendment. With respect to Respondents' "class of one" equal protection claim, Respondents must show that they have "been intentionally treated differentlyfrom others similarly situated and that there is no rational basis forthe differencein treatment." Village of Willowbrookv. Olech, 528 U.S. 562, 564 (2000) (per curiam). Respondents have made no such showing in this case. Nor have they made any showing that the intention of the Division was to deprive them of procedural safeguardsafforded to other persons. RESPONDENTS' OBJECTION 4 - PUNITIVE REMEDIES REQUIRE JURY TRIALS Respondents object to the proceeding arguing that a jury trial is required where the Commission seeks penalties in an administrative proceeding. This argument is fullyaddressed in the Division's Opening Brief (Exhibit B hereto) at pp. 28-29. In summary, the Supreme Court held in Atlas Roofingthat the Seventh Amendment right to a jury trial does not apply when the governmentbrings an enforcement proceeding in an administrative forum,even when the governmentis seeking civil penalties. 430 U.S. at 455. 4 RESPONDENTS' OBJECTION 5 -APPOINTMENTS CLAUSE Respondents object to the proceeding arguing that SEC administrative law judges have not been properly appointed. Consequently, the proceeding is void and should be dismissed. Respondents' objection is faultyas they do not address in any fashionthe Commission's November 30, 2017 order "ratiflying] the agency's prior appointment of Chief Administrative Law Judge Brenda Murray and Administrative Law Judges Carol Fox Foelak, Cameron Elliot, James E. Grimes, and Jason S. Patil." Nor do Respondents address the Commission's August 22, 2018 Order liftingits stay on all pending administrative proceedings and reaffirmingits November 30, 2017 order ratifyingthe constitutional appointment of certain ALJs. These orders of the Commission are binding in this matter and, as such, there is no basis forobjection. RESPONDENTS' OBJECTION 6 - EXPARTE COMMUNICATIONS Respondents object to the proceedings arguing that ex parte communications between the Division and the Commission in connection with the settlement with Belesis violated the APA, the Commission's Rules of Practice, and the Order Instituting Proceedings in this case. This argument was fullyaddressed in the Division's Opposition Brief filedon January 8, 2014 (Exhibit A hereto) at pp. 4-6 and in the Division's Opening and Response Brief filedon March 13, 2015 (Exhibit B) at pp. 6-11. In its January 28, 2014 Order, the Commission stated that in an unbroken line of decisions, the Commission rejected the argument that consideration of certain respondents' offerof settlement while the proceedings are still pending against other respondents "[does] not violate the Administrative Procedure Act ... or our rules regarding ex parte communications." (parenthetical and ellipses in original). While the Commission may have 5 vacated the January 28, 2014 Order, Respondents provide no reason in their in their Objections or in the attachments thereto to suggest why the Commission's reasoning was erroneous. RESPONDENTS OBJECTION 7: PURPORTED BRADY VIOLATIONS Respondents claim that the Division violated Respondents' due process rights (1) by producing tens of thousands of documents to Respondents without an adequate way to sift through them, (2) by refusingto produce interview notes, and (3) by the factthat the withheld material was not entered into the record. The firsttwo issues were addressed in the Division's October 21, 2013 Opposition to Respondents' Brady Motion (attached hereto as Exhibit C and incorporated herein) at pp.3-13 and in the Division's Opening and Response Brief filedon March 13, 2015 (Exhibit B) at pp. 11-17. In summary,
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