NEWPORT NEWS, VA—Jeffrey A. Martinovich, 46, of Norfolk, Virginia, has been indicted by a federal grand jury of fraud involving his mismanagement of a Newport News-based hedge fund.
Neil H. MacBride, United States Attorney for the Eastern District of Virginia; Rick A. Raven, Special Agent in Charge of the Internal Revenue Service Criminal Investigation’s Washington, D.C., Field Office; and Juan C. Molina, Acting Special Agent in Charge of the FBI’s Norfolk Field Office, made the announcement today after Martinovich made his initial appearance in federal court.
On October 10, 2012, Martinovich was indicted on 26 charges of mail fraud, wire fraud, unlawful monetary transactions, and bankruptcy fraud. He faces a maximum penalty of 20 years in prison for each count if convicted.
According to the indictment, 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.
The indictment alleges that in both 2007 and 2008, rather than seek this independent valuation, Martinovich fraudulently inflated the value of the solar company to falsely indicate an increase in the overall value of the hedge fund. Martinovich then allegedly 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. Martinovich filed for Chapter 7 bankruptcy in February 2011 and, during the course of his bankruptcy proceedings, is alleged to have made several false statements about gambling trips he had made to Las Vegas both before and after he filed for bankruptcy.
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 are prosecuting the case on behalf of the United States.
Criminal indictments are only charges and not evidence of guilt. A defendant is presumed to be innocent until and unless proven guilty.
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.