United States v. Jeffrey Martinovich

810 F.3d 232, 99 Fed. R. Serv. 435, 2016 U.S. App. LEXIS 181, 2016 WL 80555
CourtCourt of Appeals for the Fourth Circuit
DecidedJanuary 7, 2016
Docket13-4828
StatusPublished
Cited by27 cases

This text of 810 F.3d 232 (United States v. Jeffrey Martinovich) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fourth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Jeffrey Martinovich, 810 F.3d 232, 99 Fed. R. Serv. 435, 2016 U.S. App. LEXIS 181, 2016 WL 80555 (4th Cir. 2016).

Opinions

Affirmed in part, vacated in part, and remanded by published opinion. Judge THACKER wrote the majority opinion, in which Judge FLOYD joined. Judge WYNN wrote a separate concurring opinion.

THACKER, Circuit Judge:

During the course of a four-week jury trial, the Government sought to prove that Jeffrey A. Martinovich (“Appellant”) engaged in a scheme to defraud his investment firm’s clients out of millions of dollars. The jury found Appellant guilty of one count of conspiracy to commit mail and wire fraud, four counts of wire fraud, five counts of mail fraud, and seven counts of money-laundering. On September 30, [235]*2352013, Appellant was sentenced to 140 months of imprisonment, three years of supervised release, and monetary penalties.

Appellant appeals his convictions, alleging a litany of errors. Above all, Appellant contends that the district court improperly interfered with the trial proceedings and misstated the law during his sentencing hearing.

We conclude that the jury’s verdict must stand, but because the district court treated the United States Sentencing Guidelines (“Guidelines”) as mandatory, we vacate the sentence and remand with instructions that the matter be assigned to a different judge.

I.

A.

In or around 2000, Appellant partnered with Witt Mares & Company, a public accounting firm, to form Martinovich Investment Consulting Group (“MICG”), a financial services company that provided investment services to its clients. As a broker-dealer, MICG was licensed by the Securities and Exchange Commission and regulated by the Financial Industry Regulatory Authority (“FINRA”).

MICG utilized First Clearing, LLC, a non-bank affiliate of Wells Fargo, to provide brokerage account services, such as compiling and issuing investor statements and portfolio information, to MICG’s clients.

In 2005, Appellant became the sole owner and Chief Executive Officer of MICG. Thereafter, MICG rapidly expanded, and as a result, incurred increased expenses for salaries, rent, marketing, celebratory events, and corporate retreats.

In November 2006, Bruce Glasser began employment with MICG as managing director of investment banking. Glasser recommended that Appellant invest in EPV Solar, Inc., a privately held solar energy company. Appellant and Glasser expected EPV’s value to increase with EPV’s initial public offering (“IPO”) in 2008. In order to take advantage of the EPV investment opportunity, MICG created a hedge fund for MICG’s clients and launched MICG Venture Strategies, LLC (“Venture Fund”). The Venture Fund consisted of only non-public assets that were not otherwise tradeable. The governing document for the Venture Fund was the Private Placement Memorandum (“PPM”). The PPM defined the Venture Fund’s investment strategy and objectives, including defining the manager’s role. Pursuant to the PPM, Appellant had sole authority for investment decisions, asset valuations, incentive allocation, and management fees for the Venture Fund. EPV became its first investment with over 1.8 million shares purchased at $1.15 per share in June and September 2007.

As the Venture Fund manager, Appellant received both a 1% management fee and 20% incentive fee based on the Venture Fund’s performance. First Clearing managed the brokerage account services for the Venture Fund, and Appellant maintained the only check writing privileges for receiving and disbursing money related to the Venture Fund account.

Pursuant to the PPM, Appellant needed an independent valuation of EPV in order to calculate his management and incentive fees and value to the clients. In turn, Appellant, through First Clearing, would provide statements, which reflected the Venture Fund’s holdings and performance, to MICG’s clients. A rise in the value of the holding meant additional incentive and management fees to Appellant.

Despite the PPM’s requirement for an independent valuation, Appellant, through [236]*236Glasser and Steven Gifis (an EPV shareholder and broker of the MICG/EPV deal), had Peter Lynch (an EPV shareholder, consultant, and a solar industry expert) conduct the valuation.1 During the course of the valuation process, Lynch was unaware of the true intent of the valuation. Rather, Gifis told Lynch that the valuation was being done so that EPV’s president could value his personal holdings. Lynch did not know the valuation was being produced pursuant to Appellant’s request, was to be used to value assets held in a hedge fund, or that it would be used outside EPV.

Under these false pretenses, Lynch provided a valuation share price of $2.13 for end-of-year 2007. Based on this end-of-year valuation, Appellant took an incentive and/or management fee of $357,019, withdrawn from First Clearing.

In early 2008, Appellant added an ownership in a privately held soccer team, the General Sports Derby Partnership (“Derby Rams”), and an interest in a construction bond to the Venture Fund. In September 2008, when EPV’s financing dissolved, its IPO failed to launch, thereby damaging its forecasted growth potential. As a result, MICG clients sought a return of their money. In response, Appellant proceeded to deny, discourage, and delay his clients’ redemptions, yet in October 2008, he redeemed $100,000 of his own investment. Moreover, even with EPV’s decline, Appellant continued to encourage and recruit individuals to invest capital into the Venture Fund. In doing so, Appellant (1) sought unsophisticated investors; (2) failed to disclose EPV’s dire condition; (3) misinformed investors about their redemption ability; and (4) used new investment money to pay other investors.

Needing another valuation for end-of-year 2008, in December 2008, Appellant again orchestrated an EPV share price valuation. From a share price of $2.13 in December 2007, Appellant requested that EPV show an increased share value of $2.16 for end-of-year 2008, and this $2.16 share price recommendation was submitted to Lynch. In order to support his predetermined incentive and management fees, along with EPVs predetermined valuation, Appellant also represented that the Derby Rams were valued at $7,595,000. However, the Derby Rams were actually valued at $6,000,000. On January 2, 2009, Appellant took three draws totaling $478,363.47 from the Venture Fund’s First Clearing account to pay Appellant’s management and incentive fees.

Lynch once again approved Appellant’s predetermined price of $2.16, thinking it was only being used internally. On January 4, 2009, Appellant received confirmation that Lynch approved the $2.16 valuation. However, because of the decreased value of Derby Rams, Appellant required even more inflation to EPVs valuation to justify the incentive and management fees of $478,363.47 that Appellant had already paid himself. Thus, on January 7/2009, Appellant authored and transmitted another increased EPV valuation at $2.42, which was signed by Lynch on January 15, 2009. But a $2.42 share price was still not high enough to support Appellant’s incentive and management fees.- So, several hours later, on January 15, 2009, Appellant authored and transmitted yet another increased .valuation at a $2.88 share price.

Appellant was aware the $2.88 share value was excessive. Even so, MICG clients received their statements from First Clearing indicating this $2.88 share value, and Appellant continued to assure investors of the Venture Fund’s security. [237]

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Cite This Page — Counsel Stack

Bluebook (online)
810 F.3d 232, 99 Fed. R. Serv. 435, 2016 U.S. App. LEXIS 181, 2016 WL 80555, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-jeffrey-martinovich-ca4-2016.