Former CEO of Newport News Investment Firm Convicted of Fraud
|U.S. Attorney’s Office May 06, 2013|
NEWPORT NEWS, VA—Jeffrey A. Martinovich, 46, of Norfolk, Virginia, was convicted today by a federal jury for his involvement in fraud related to the mismanagement of a Newport News-based hedge fund. Specifically, he was convicted of conspiracy to commit mail and wire fraud, four counts of wire fraud, five counts of mail fraud, and seven counts of unlawful monetary transactions.
Neil H. MacBride, United States Attorney for the Eastern District of Virginia; Tom Kelly, Special Agent in Charge of the Internal Revenue Service Criminal Investigation’s Washington, D.C., Field Office; and Royce E. Curtin, Special Agent in Charge of the FBI’s Norfolk Field Office, made the announcement today after the verdict was accepted by United States District Judge Robert G. Doumar. Martinovich faces a maximum penalty of 20 years in prison for each conviction when he is sentenced on August 7, 2013.
“As a hedge fund manager, Martinovich promised investors that he would act in their best interest in managing their hard earned money,” said U.S. Attorney MacBride. “Instead, Martinovich acted solely in his own self-interest and engaged in financial sleight of hand to fraudulently maximize his management fees. His conviction should send a strong message that fraudsters who violate the trust of the investing public will be brought to justice.”
Martinovich was indicted on October 10, 2012, on 26 charges of mail fraud, wire fraud, unlawful monetary transactions, and bankruptcy fraud. According to court records and evidence at trial, Martinovich was the CEO of MICG Investment LLC, an investment firm based in Newport News, Virginia. In 2007, Martinovich started three hedge funds through MICG and began seeking investments. Acting on behalf of MICG, Martinovich purchased approximately two million shares of a privately traded solar energy company for the MICG Venture Strategies LLC hedge fund. At the end of each calendar year, in order to calculate the management and incentive fees he had earned as hedge fund manager, Martinovich needed to obtain an estimate of the value of the solar company shares held by Venture Strategies. Because the solar company was not publicly traded, MICG was required to seek an independent, external, valuation of the company’s worth when calculating the management and incentive fees to be paid.
In 2008, under the guise of seeking an independent valuation, Martinovich and others fraudulently inflated the value of the solar company to falsely indicate an increase in the overall value of the hedge fund. Martinovich then used this fraudulent, unsupported, and inflated value of the solar company to convince new investors to invest in Venture Strategies, as well as to pay himself greater fees. The solar company eventually declared bankruptcy, resulting in serious financial problems for many Venture Strategies investors who had collectively invested over $1.5 million.
This case was investigated by the Internal Revenue Service-Criminal Investigations Division and the Federal Bureau of Investigation, with the assistance of the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Virginia State Corporation Commission. Assistant United States Attorneys Brian J. Samuels and V. Kathleen Dougherty prosecuted this case on behalf of the United States.
A copy of this press release may be found on the website of the United States Attorney’s Office for the Eastern District of Virginia at http://www.justice.gov/usao/vae.