FINRA Expels MICG Investment Management and Bars MICG's CEO for Fraud In Connection With MICG's Venture Strategies Hedge Fund
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has expelled MICG Investment Management, LLC (MICG) of Newport News, VA, and barred Jeffrey A. Martinovich, the firm's CEO and majority owner, for securities fraud, misusing investors' funds and causing false account statements to be issued to investors in connection with their management of a proprietary hedge fund named MICG Venture Strategies, LLC (Venture Strategies). MICG and Martinovich organized, controlled and managed the hedge fund.
FINRA found that MICG and Martinovich improperly assigned excessive asset values to two non-public securities owned by Venture Strategies, and used the excessive asset values as the basis for paying unjustified management and incentive performance fees. Martinovich also fraudulently induced an elderly, non-accredited MICG customer to invest $75,000 in Venture Strategies.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "MICG and Martinovich used the proprietary hedge fund to unjustly enrich themselves. This extreme abuse of trust, and their disregard for the interests of public investors, demonstrated their unfitness for participation in the industry."
FINRA found the following:
- In order to inflate their management and incentive fees in 2007 and 2008, which were dependent on the value of the hedge fund's assets, MICG and Martinovich assigned unjustifiably high values to the assets, rather than relying on independent or legitimate valuations or valuation methods. For example, at various times, MICG and Martinovich valued an equity interest at more than triple the price at which it was contemporaneously being offered to them for sale.
- In mid-2007, MICG and Martinovich caused Venture Strategies to purchase about 1.8 million shares of EPV Solar Inc. (EPV) common stock for about $1.15 per share. At all relevant times, EPV was a private company and there was no public trading in its stock. Nevertheless, without a reasonable basis for doing so, MICG and Martinovich raised the value of the shares as recorded on MICG's books to $2.13 per share as of Dec. 12, 2007 – improperly causing Venture Strategies to pay MICG an incentive management fee of about $337,000 for 2007.
- MICG and Martinovich distributed false and misleading account statements to Venture Strategies investors, and made material misrepresentations and omissions in the private placement memoranda through which they sold the Venture Strategies units.
- In December 2008, Martinovich recommended and sold to an elderly, non-accredited investor a $75,000 purchase of Venture Strategies units without having reasonable grounds for believing the investment was suitable for him. Martinovich also failed to disclose to the customer that Venture Strategies needed the funds to pay incentive and/or management fees from which MICG and Martinovich would derive financial benefit.
In concluding this settlement, MICG and Martinovich neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
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