The Financial Industry Regulatory Authority announced it has expelled Newport News, Va.-based MICG Investment Management and barred the firm's CEO, Jeffery A. Martinovich.
According to Finra, the two were accused of securities fraud, misusing investor's funds and issuing false account statements to investors through their management of proprietary hedge fund MICG Venture Strategies LLC.
"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," said Brad Bennett, Finra executive vice president and chief of enforcement.
Finra found that between 2007 and 2008, MICG and Martinovich assigned unjustifiably high values to the hedge fund's assets--at times up to triple the price it was being offered to them at sale--in order to inflate their management and incentive fees. In one case, they caused Venture Strategies to purchase approximately $1.8 million shares in EVP Solar Inc., a private company that did not trade its stock publicly, for $1.15 per share. MICG and Martinovich raised the value of the shares in MICG's books to $2.13 per share. The result of this action caused Venture Strategies to pay MICG an inflated management fee of $337,000 for 2007.
MICG and Martinovich then issued false and misleading account statements to Venture Strategies investors, and made misrepresentations and omissions in the memoranda through which they sold the units.
Finra also found that in December 2008, Martinovich fraudulently recommended and sold an elderly, non-accredited investor $75,000 in Venture Strategies units without reasonable grounds to believe the investment was best suited for him.
Both consented to Finra's findings while neither admitting nor denying the charges.