The former CEO of a Newport News-based hedge fund has been convicted of fraud for inflating the value of an underlying asset in order to solicit additional investments and pay himself more in fees.
According to court documents and evidence presented at trial, Jeffrey A. Martinovich, of Norfolk, Virginia, served as CEO of MICG Investment LLC. During his time there, he started three hedge funds, including MICG Venture Strategies LLC. As hedge fund manager, Martinovich received management and incentive fees based on the value of the funds’ underlying assets.In 2007, acting on behalf of MICG, Jeffrey Martinovich purchased two million shares of a privately traded solar energy company for the Venture Strategies hedge fund.
According to the U.S. Attorney’s Office for the Eastern District of Virginia:
“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 the inflated valuation to persuade new investors to invest in Venture Strategies. He also used the fraudulent valuation to calculate his management fees, thus paying himself more than he was owed. When the solar company eventually filed for bankruptcy, the hedge fund’s investors suffered significant losses.
“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.”
At trial, a federal jury found Martinovich guilty 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. The maximum penalty for each count is 20 years. His sentencing is scheduled for Aug. 7. For additional information on the Jeffrey Martinovich investment fraud case, click here.