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JOHN THOMAS FINANCIAL, INC., And -~;i;e:l: UNITED STATES OF AMERICA Before the I SECURITIES AND EXCHANGE COMMISSlON. y " . MA c:.8 2014 ~FFlCE otrH{SECRETARt In the Matter of JOHN THOMAS CAPITAL MANAGMENT GROUP LLC d/b/a PATRIOT28 LLC, File No. 3-15255 GEORGE R. JARKESY, JR., JOHN THOMAS FINANCIAL, INC., and ANASTASIOS "TOMMY" BELESIS, Respondents. RESPONDENTS' POST-HEARING MEMORANDUM OF LAW Karen Cook, Esq. S. Michael McColloch, Esq. Karen Cook, PLLC S. Michael McColloch, PLLC E-mail: [email protected] E-mail: [email protected] Phone: 214.593.6429 Phone: 214.593.6415 1717 McKinney A venue, Suite 700 171 7 McKinney A venue, Suite 700 Dallas, Texas 75202 Dallas, Texas 75202 Fax: 214.593.6410 Fax: 214.593.6410 Counsel for: John Thomas Capital Management Group d/b/a Patriot28 LLC and George Jarkesy, Jr. TABLE OF CONTENTS Preliminary Statement....................................................................................................... l The AP is Void Because the Commission Prejudged the Case Against Respondents ............................................................................................................ 2 The AP Should Be Dismissed Due to Improper Ex Parte Communications with the Division of Enforcement Prior to the Hearing ..................................... 8 The AP is Void Because the Commission Failed to Follow its Own Rules of Practice.................................................................................................................. ll Respondents' Constitutional Rights Were {and continue to be) Violated .................. 12 Denial ofRespondents' Rights to Due Process ..•••.••.....................••...............•.•.. 12 Denial ofRespondents' Rights to Equal Protection-Arbitrary Selection ofAP Forum ............................................................................................. 16 Denial ofRespondents' Rights to Equal Protection-Deprivation of Right to Jury Trial .................................................................................... 17 The Division Failed to Prove Violations of the Anti-Fraud Provisions of the Securities Act and Exchange Act ........................................................................ 25 The Division Failed to Prove Violations of the Anti-Fraud Provisions of the Advisors Act ......................................................................................................... 28 The Division Failed to Prove Aiding and Abetting Liability for Respondents Under Section 17{a) of the Securities Act and Section lO{b) of the Exchange Act and Rule 1O(b )-5 .......................................................................... 30 Imposition of Remedies is Not Supported by Evidence or Public Policy ..•••.............. 32 Conclusion ........................................................................................................................ 35 1 TABLE OF AUTHORITIES Judicial Authority Aaron v. SEC, 100 S. Ct. 1945 (1980) ............................................................................... 26 Amos Treat & Co. v. SEC, 306 F.2d 260 (D.C. Cir. 1962) ................................................. .4 1 Antoniu v. S.E.C., 877 F.2d 721 (8 h Cir. 1989), cert. denied, 110 S. Ct. 1296 (1990) ............................................................................................................... 3, 4, 5 Atlas Roofing Co. v. Occupational Safety & Health Review Comm 'n, 97 S. Ct. 1261 ( 1977) ... ··············· ..................................................... ········ ....................... 17' 21 Battle v. FAA, 393 F.3d 1330 (D.C. Cir. 2005) ................................................................ .12 Bolling v. Sharpe, 34 7 U.S. 497 ( 1954) ............................................................................. 18 Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 110 S. Ct. 1339 (1990) ....... .18 Cinderella Career & Finishing Sch., Inc. v. Fed. Trade Comm 'n., 425 F .2d 583 (D.C. Cir. 1970) ................................................................................................... 6, 7 Curtis v. Loethar, 94 S. Ct. 1005 (1974) ........................................................................... 19 Columbia Broad. Sys., Inc. v. United States, 62 S. Ct. 1194 (1942) ................................. 11 Dimickv. Schiedt, 293 U.S. 474 (1935) ............................................................................. 18 Duncan v. Louisiana, 391 U.S. 145, 149 (1968) .............................................................. .18 Ernst & Ernst v. Hochfelder, 96 S. Ct. 1375 (1976) ......................................................... .26 F.C.C. v. Fox Television Stations, Inc., 129 S. Ct. 1800 (2009) ....................................... .24 Far East Coriference v. United States, 72 S. Ct. 492 (1952) ............................................ .22 Feltner v. Columbia Pictures Television, Inc., 118 S. Ct. 1279 (1998) ............................. 18 Five Flags Pipe Line Co. v. Department ofTransp., 854 F.2d 1438 (1988) .................... .23 Free Enterprise v. Pub. Co. Accounting Oversight Bd., 130 S. Ct. 3138 (2010) ............. .22 Galloway v. United States, 63 S. Ct. 1077 (1943) ............................................................. 19 Giglio v. US., 92 S. Ct. 763 (1972) .................................................................................. .12 Granjinanciera, SA., v. Nordberg, 109 S. Ct. 2782 (1989) ........................................ 17, 21 11 Hardware Dealers Mut. Fire Ins. Co. ofWisconsin v. Glidden Co., 284 U.S. 151 (1931) ..................................................................................................................... 18 Henning v. Wachovia Mortg., ---F. Supp. 2d ----, 2013 WL 5229837 (D. Mass. Sept. 17, 2013) ....................................................................................................... 33 In re Japanese Elec. Prods. Antitrust Lit., 631 F .2d 1069 (3rd Cir. 1980) ........................ 19 In re Murchison, 349 U.S. 133 (1955) ................................................................................ .4 J W Hampton, Jr. & Co. v. United States, 48 S. Ct. 348 (1928) ................................. 23, 24 Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) .................. 27 Marshall Field & Co. v. Clark, 12 S. Ct. 495, 504 (1892) ................................................ 23 Mistretta v. United States, 109 S. Ct. 647,654 (1989) ..................................................... .23 Mizner Grand Condo. Ass 'n v. Travelers Prop. Cas. Co. ofAm., 270 F.R.D. 698 (S.D. Fla. 2010) ...................................................................................................... 13 Morton v. Ruiz, 94 S. Ct. 1055 (1974) ............................................................................... 11 New Yorkv. United States, 112 S.Ct. 2408 (1992) ............................................................ 23 NLRB v. Jones & Laughlin Steel Corp., 57 S. Ct. 615 (1937) ........................................... 17 Offutt v. United States, 75 S. Ct. 11 (1954) ........................................................................ .4 Parklane Hosiery Co., Inc. v. Shore, 99 S. Ct. 645 (1979) .......................................... 19, 20 Residential Contractors, LLC v. Ace Prop. & Cas. Ins. Co., No. 2:05-cv-01318- BES-GWF, 2006 U.S. Dist. LEXIS 36943 (D. Nev. 2006) ................................. 13 SEC v. Apuzzo, 689 F.3d 204 (2d Cir. 2012) ..................................................................... 31 SEC v. Collins &Aikman Corp., 256 F.R.D. 403 (S.D.N.Y. 2009) ........................... 13, 14 SEC v. DiBella, 587 F .3d 553 (2d Cir. 2009) .................................................................... 31 SEC v. Gann, 565 F.3d 932 (5th Cir. 2009) ....................................................................... 25 SEC v. Lauer, No. 03-80612-CIV, 2008 WL 4372896 (S.D. Fla. Sept. 24, 2008) .......... .28 SEC v. Lipson, 278 F.3d 656 (7th Cir. 2002) .................................................................... .18 SEC v. Merch. Capital, LLC, 483 F.3d 747 (11th Cir. 2007) ...................................... 25, 26 SEC v. Moran, 922 F. Supp. 867 (S.D .N. Y .1996) ............................................................. 28 111 SEC v. Morgan Keegan & Co., 678 F.3d 1233 (11th Cir. 2012) ................................. 25, 26 SEC v. Quan, No. 11-723 ADM/JSM, 2013 WL 5566252 (D. Minn. Oct. 8, 20 13) ......... 28 SEC v. Spence & Greene Chern. Co., 612 F .2d 896 (5th Cir. 1980) ................................. 26 SEC v. Yorkville Advisors, LLC, No. 12 Civ. 7728(GBD), 2013 WL 3989054 (S.D.N.Y. Aug. 2, 2013) ........................................................................................ 28 Steadman v. SEC, 603 F.2d 1126, 1134 (5th Cir. 1979), aff'd on other grounds, 101 S.Ct. 999 (1981) .............................................................................................. 28 Texaco, Inc. v. Fed. Trade Comm'n, 336 F.2d 754 (D.C. Cir. 1964), vacated on other grounds, 85 S. Ct. 1798 (1965) .................................................................. 5, 6 Thomas v. Union Carbide Agric. Prod. Co., 105 S. Ct. 3325 (1985) ................................ 21 United States v. Caceres, 99 S. Ct. 1465 (1979) ................................................................ 12 United States v. Salyer, Cr. No. 8-10-0061 LKK (GGH), 2010 WL 3036444 (E.D. Ca. Aug. 2, 2010) ........................................................................................
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