FINRA says that a brokerage firm it recently expelled committed securities fraud. MICG Investment Management LLC of Newport News, Virginia, committed fraud in the management of a proprietary hedge fund. FINRA is also suing the firm for misusing investors’ funds and causing false account statements to be issued to investors.
FINRA had shut down MICG when the firm failed to meet its net capital requirement. The hedge fund — MICG Venture Strategies LLC — was organized and managed by MICG. FINRA’s complaint charges that MICG and its owner, Mr. Martinovich, improperly assigned excessive asset values to two non-public securities owned by the hedge fund, and then used the excessive asset values as the basis for paying unjustified management and incentive performance fees.
Mr. Martinovich was also charged with fraudulently inducing an elderly, non-accredited MICG client to invest $75,000 in the hedge fund.
Mr. Martinovich and MICG received a management fee of $337,000 from the hedge fund. FINRA says the other overvalued investment was a stake in a soccer club, Derby County FC, which plays in the second tier of England’s professional league.
Mr. Martinovich allegedly sent an e-mail to staff members in December 2008 instructing them to change the value of the hedge fund’s interest in the shares of the club to $7.6 million. FINRA claims MICG had purchased the shares about a year earlier for $5 million.
While this was a Virginia broker dealer, FINRA appears to be doing an increasingly more vigilant job in enforcing the net capital requirement against firms, including those in Florida. This likely can be attributed to the scathing criticism regulators have taken since the Madoff crisis broker in December 2008.