Why Mark Cuban is Backing an Alleged Fraudster Against the SEC

Elon Musk and Mark Cuban have publicly thrown their support behind George Jarkesy, a former hedge fund manager and talk radio host, who was accused of defrauding investors of $685,000 and whose case was heard today by the Supreme Court.

Now, George is not a sympathetic figure and we'll get to that a little bit later in the show. But I have to say, I think I agree with Elon and Mark on this one and their support for George.

This is a really interesting case with some crazy characters in the center of it. And we're going to talk all about it right after we hear this word from our amazing sponsors who make this show possible.

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All right, folks, here's what's happened.

In 2013, George Jarkesy and his investment advisory firm Patriot 28 LLC. Oh, my God, this guy is such a character. Were accused by the SEC of defrauding investors of nearly a million dollars. George was then brought in front of an administrative law judge within the SEC who found him guilty of this and imposed a fine of somewhere between 300,000 and four hundred fifty thousand dollars. I found conflicting reports online and basically said, hey, you need to pay seven hundred thousand dollars back to the people you defrauded and also barred him from ever working in the securities industry again.

Now, George appealed this decision and won on the basis that this process that he was put through, this process of going before an ALJ, an administrative law judge, instead of being able to have a jury trial that that was unconstitutional. So he won that case and then that decision was appealed. And now the Supreme Court this morning heard oral arguments about this case as well.

Now, let me pause here to say I definitely think George Jarkesy defrauded investors of six hundred eighty five thousand dollars. I mean, I don't know that for sure. But take a listen to this clip from his syndicated talk show and let me know what you think.

<Audio Clip of George Jarkesy> -"California is bankrupt. Illinois is bankrupt. New York is bankrupt. That's the climate of things that led to the Civil War. What does Comrade Obama have to say about it? What do you think Comrade Obama has to say about this? He likes the redistribution of wealth. You can see it in his propaganda. Let's tax the rich,".

Comrade Obama, thanks, Comrade Obama.

Oh, my God, these people cracked me up.

So look, I don't mind a healthy debate about taxation and the role of government and redistribution and all that kind of stuff. But this guy has that kind of over the top self-righteous anger of like a homophobic gay man.

You know, like they say you hate other people who actually just reflect to you something that you hate in yourself. And I feel like this guy hates the fact that the government takes people's money so much that I think he's taking other people's money.

You know what I mean?

I mean, I'm kidding on this. Obviously, that is not a basis on which to think this guy is guilty. He just strikes me as guilty having listened to him a lot. But, I fully believe he deserves a fair trial. And that's really what's at the center of this whole thing.

This process, this process of bringing people before an administrative law judge in an in-house tribunal within the SEC really began in 2010 when Congress passed the Dodd-Frank Act in the wake of the 2008 financial crisis.

Now, the problem here is multifold. First of all, the SEC gets to determine who gets a trial in a federal court versus who gets a trial in one of these administrative cases within the SEC. And there's no choice and no say given to the individual who's been accused of something.

So George Jarkesy's attorney this morning in court, in the Supreme Court, called that coercive. He was saying you're coercing somebody into having a particular hearing and you're not giving them the option to have a jury trial.

Second of all, critics of this whole process say that the SEC has all sorts of unfair advantages when they try cases within their own administrative in-house tribunal.

One thing that you hear a lot is that the SEC is allowed to introduce all sorts of documents and facts in their own case that are really hearsay and that wouldn't be admitted in a federal court.

"So the SEC is able to essentially admit all kinds of hearsay and authenticate. You got documents that also wouldn't be admissible in a federal court,".

The attorney for George D'Archese also brought this up, he said, "the difference between going to federal court versus administrative proceeding is stark,".

He was saying the SEC gets a head start on you. He said they'll give you like an eight terabyte drive with all sorts of information in it and they'll say, cool, you're going to court in four months and you're not able to even search through the disk in any sort of cohesive way. So you're stuck sorting through thousands of pieces of documentation in some cases to prepare for a trial that's going to happen in four months.

And then he concluded this whole section by saying, "And the hearsay rules don't apply except when they do." And so again, speaking to this idea that the SEC really has the advantage here.

And this all culminates in one particularly damning stat, which is in 2013, which was the year that George Jarkesy was charged and went through this process, the SEC won 100% of cases that they brought to an administrative law judge within the SEC and they only won 61% of cases that were brought before a jury.

So it's pretty clear the advantage that the SEC has when working within this administrative system.

And perhaps not surprising that Elon Musk and Mark Cuban have thrown their support behind George in this case. Neither of them are known to be particular fans or friends of the SEC. Mark Cuban was accused of insider trading by the SEC in 2004. He beat that charge in a case that was held in federal court.

And Elon Musk has had a number of run-ins with the SEC and has historically called them those bastards.

<Audio Clip of Elon Musk> - "I was forced to concede to the SEC, unlawfully, those bastards."

So, really, not a friend to the SEC. He's also currently ensnared in some sort of conflict with the SEC.

Now, of course, there's more to this whole thing, a lot more to this whole thing than I can outline in just a short video here. I mean, counterpoints to those that I just raised would be that there are all sorts of legal questions about what precedence this would set or what precedence this would maybe overturn that the Supreme Court has already ruled on.

There's issues around what would this mean for other agencies within the government that have administrative proceedings like this one.

There's concerns about clogging the federal court system if you don't have an alternative like this administrative system that exists within the SEC now.

I mean, on and on, there's arguments certainly for the other side of this.

Now, we won't get a ruling from the Supreme Court on this for another few months, but a decision is expected before June. And for me, I think cases like this, while they seem perhaps small, I think they're actually quite important. I mean, certainly there are people who would argue that this is really a case about the erosion of civil liberties in this country and certainly that it's a case about, it's quite literally a case about the Seventh Amendment.

And so I think that's why you have people like Elon Musk and Mark Cuban who are busy, busy people paying attention to something like this. And I think it's important that more individuals pay attention to things like this because an informed electorate is a powerful electorate.

In any case, based on the information that I have, I hate to say it, but supporting George Jarkhesi on this one, I have seen as somebody who has been involved in crypto for the last two years, I think the SEC has done a horrible job handling crypto. I think they have both under regulated it and then over regulated it. I mean, I don't really think they've over regulated it, but they've done this regulation by enforcement thing that I think is really ineffective and damaging. And on the other hand, they have not created any meaningful or important guidelines or rules that would actually help prevent the kinds of frauds that we've seen in this space over the last five, 10 years, frankly.

In any case, let me know what you think of this case, either in the comments or on Twitter, if you're listening to the podcast. If you are enjoying this content, please do consider subscribing either on YouTube, on the podcast, shoot it a like. I really, really appreciate y'all for being here.

I am working on a slightly more investigative piece that's taking up some of my time that I'll hopefully be able to put out maybe as early as next week, but if not hopefully the week after, we'll have to see how long it takes me to get information from people. But that's why I didn't have a video go out yesterday. I was really focused on that.

And with that said, thank you so much for being here. I will see you next time.

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