It Ain't Over Till It's Over As Martinovich Appeals Continue

April 10, 2020

About a decade ago in 2011, FINRA entered into an Order Accepting Settlement with FINRA member firm MICG Investment Management, LLC and associated person Jeffrey A. Martinovich (FINRA Order Accepting Settlement, Disc. Proc. No. 2009016230501 / February 3, 2011) (Note: the Respondents did not admit or deny the allegations in FINRA's Complaint) In accordance with the terms of the Order, FINRA  expelled MICG and barred Martinovich. Allegedly, FINRA found that MICG and Martinovich had improperly assigned excessive asset values to two non-public securities owned by MICG Venture Strategies LLC, a hedge fund which the Respondents had purportedly organized, controlled and managed. Further, FINRA alleged that the Respondents used the excessive asset values as the basis for paying unjustified management and incentive performance fees. Pointedly, FINRA alleged that Martinovich also fraudulently induced an elderly, non-accredited MICG customer to invest $75,000 in Venture Strategies.

2012  EDVA Indictment 

In October 2012, Martinovich, then 45, was indicted in the United States District Court for the Eastern District of Virginia ("EDVA") on 26 charges of mail fraud, wire fraud, unlawful monetary transactions, and bankruptcy fraud; and he was convicted by a jury on May 6, 2013. "Former CEO Of Newport News Investment Firm Convicted Of Fraud" ( the "2013 DOJ Release") As set forth in part in the 2013 DOJ Release:

[M]artinovich 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.

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 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 who had collectively invested over 1.5 million dollars.

2015 EDVA Indictment

In 2015, Martinovich was indicted in EDVA and in May 2016 he pled guilty to money laundering. "Financial Advisor Pleads Guilty to Money Laundering" (the "2016 DOJ Release")
As set forth in part in the 2016 DOJ Release:

[M]artinovich was the head of MICG, a broker-dealer located in Newport News.  In 2013, Martinovich was convicted after a jury trial of federal charges related to his fraudulent inflation of assets in the Venture fund - a hedge fund he managed and administered.  After these charges were brought, Martinovich engaged in a scheme to use the assets of a different hedge fund (the Partners fund) he managed to pay for his criminal legal defense, including payments to expert witnesses, a jury selection consultant, and other litigation expenses.  Martinovich falsely represented to his attorney, and took other steps to conceal, the origin of these funds used for his defense.  Further, Martinovich declined to make distributions to investors in the Partners fund, choosing instead to use the balance of the fund to pay for expenses related to his offense. 

According to court documents, following the defendant's convictions on May 6, 2013, it came to light that the defendant had wrongfully diverted over $700,000 from the Partners Fund and instructed an employee to conceal his theft through false bookkeeping entries. 

According to court documents, on Sept. 30, 2013, Martinovich was sentenced to 140 months in prison for his fraudulent manipulation of the assets in the Venture Fund.  His appeal of his convictions was denied by the U.S. Court of Appeals for the Fourth Circuit, and the case has been remanded for resentencing. 

Martinovich was indicted on charges stemming from his use of the Partners fund monies by a federal grand jury on July 15, 2015.  Martinovich faces a maximum penalty of 20 years in prison sentenced on September 29. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.

Just a brief recap:
  • In 2011, Martinovich was barred by FINRA 
  • In 2012, he was indicted in EDVA (EDVA I)
  • In 2013 he was convicted by EDVA I jury and sentenced to 140 months in prison, which he appeals
  • In 2015 he was indicted in EDVA on another matter (EDVA II)
  • In 2016 he pled guilty to EDVA II
  • In 2016 4Cir consider his appeal of EDVA I
and now we pick up the thread . . .

2016 4Cir Opinion (EDVA I)

On appeal to the United States Court of Appeal for the Fourth Circuit ("4Cir"), Martinovich argued, in part, that the EDVA had improperly interfered with the trial and misstated the law during sentencing. United States of America, Plaintiff/Appellee, v. Jeffrey A. Martinovich, Defendant/Appellant (Opinion, 4Cir, 13-4828 / January 7, 2016) (the "2016 4Cir Opinion")
By way of prelude, 4Cir summarized the posture of the case:

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, 2013, Appellant was sentenced to 140 months of imprisonment, three years of supervised release, and monetary penalties.

At Page 2 of the 2016 4Cir Opinion 

In addition to the above, the EDVA jury found Martinovich not guilty of one count of wire fraud and two counts of money laundering; and the jury deadlocked over three counts of wire fraud and two counts of fraudulent oaths in a bankruptcy proceeding. In framing the matters before it on appeal, the 4Cir discerned only two issues warranting extended discussion in its Opinion:

[F]irst, Appellant alleges that the district court's interruptions and courtroom management style deprived him of a fair trial. Second, Appellant contends that the district court erred when it treated the Guidelines as mandatory. 

At Page 11 of the 2016 4Cir Opinion 

In considering the alleged interruptions by EDVA, 4Cir sets out its standard of review as requiring 1) a finding that any error must be prejudicial; and 2) that such prejudice affected the outcome of the lower court's proceedings. See, at Pages 11 - 12 of the 2016 4Cir Opinion. As to the first prong, 4Cir found in Martinvoich's favor:

In sum, the district court's repeated comments were imprudent and poorly conveyed. Considering the breadth of the district court's actions, from questioning witnesses and counsel to interrupting unnecessarily, we find that the district court strayed too far from convention. Ultimately, we find the district court's actions were in error.

At page 17 of the 2016 4Cir Opinion 

In determining whether the prejudicial error affected the trial's outcome, 4Cir found that:

[A]ppellant has not demonstrated, and we cannot conclude, that the district court's comments throughout several weeks of trial impacted the trial's outcome. This is evident, in part, by the jury's divided verdict. The jury independently and thoroughly deliberated for nearly three days and found Appellant guilty on seventeen charges, not guilty on three charges, and could not reach a verdict on five charges. Such a split verdict illustrates that the district court's comments were not so prejudicial as to warrant overturning Appellant's remaining convictions. . . .

. . .

[A]lthough the district court's interferences in this case went beyond the pale, in light of the plain error standard of review and the overwhelming evidence against Appellant, the district court's conduct did not create such an impartial and unfair environment as to affect Appellant's substantial rights and undermine confidence in the convictions. Accordingly, we must uphold the jury's verdict.

At page 20 -21 of the 2016 4Cir Opinion 

Although the 4Cir affirmed EDVA's convictions on all counts, the appellate court vacated the sentence as procedurally unreasonable with a remand tor further proceedings before a different District Court judge consistent with the court's Opinion. The 4Cir's remand to a different judge was largely predicated upon its conclusion that the sitting EDVA judge had committed statutory error by treating the United States Sentencing Guidelines as mandatory rather than advisory. See, at Page 29 of the 2016 4Cir Opinion.

2019 4Cir Opinion (EDVA I and EDVA II Mash-Up)

On a second round of appeal to the 4Cir, United States of America, Plaintiff/Appellee, v. Jeffrey A. Martinovich, Defendant/Appellant (Opinion, 4Cir, 18-7061/ June 13, 2019) (the "2019 4Cir Opinion"), 
Martinovich, arguing pro se, was heard on the following issues:

[W]hether Martinovich received ineffective assistance of counsel when his attorney failed to object to (1) the presentence report's (PSR) and the district court's conclusions that Martinovich was overstating his employment and volunteer work at the prison; (2) the district court's determination that it would not consider Martinovich's positive work in the community in determining his sentence; and (3) the district court's conclusion that Martinovich agreed to a sentence at the top of the Guidelines range. 

At Page 2 of the 2019 4Cir Opinion

In vacating EVA's Order and, yet again, remanding, the 4Cir found that:

[M]artinovich has made a credible showing that his proffer regarding his volunteer and employment work in prison was truthful. His statements that he informed his attorney of this and requested that that objections be made are undisputed at this time. Further, the sentencing court explicitly concluded that Martinovich was exaggerating his work in prison based on its belief, not included in the PSR, that the BOP would document everything Martinovich was alleging. This conclusion bolstered the sentencing court's belief that Martinovich was trying to "game" the system. While Martinovich affirmed the correctness of PSR, the actual PSR stated little more than that the BOP records on 5 these issues did not exist. Given the additional error listed below, as well as the fact that the district court did not specifically address the details of this claim and did not request a response from the Government, we vacate the district court's order and remand for further proceedings.

At Pages 4 -5 of the 2019 4Cir Opinion

In considering Martinovich's assertions of ineffective counsel, 4Cir found that:

At sentencing, the district court calculated the Sentencing Guidelines range and then stated, "the government has asked for 63 months to run concurrent with the sentence I imposed on the 2012 case, and [Martinovich's counsel] has agreed with that." Counsel did not object. Sixty-three months was the top of the Guidelines range, and Martinovich asserts that his attorney was ineffective for agreeing to such a sentence, especially absent authorization. The district court rejected the claim, relying on counsel's written sentencing memorandum, requesting that Martinovich be sentenced "substantially below the agreed guideline range and that the sentence imposed on Count 10 . . . run concurrent as contemplated by the plea agreement and agreed to by the United States." However, it appears the request for a lower-than-Guidelines range sentence was only with regard to the 2012 case, as that was the only case with an "agreed" Guidelines range in the plea agreement. Further, the district court's reasoning is illogical. If indeed counsel requested a below-Guidelines sentence in presentencing memoranda in the 2015 case, the sentencing court's determination that counsel had agreed to the top of the Guidelines range was obvious and clear error. Moreover, if counsel had objected, it is arguable that the district court might have imposed a sentence in the middle of the Guidelines range, as it did in the 2012 case, and perhaps might have run less of it consecutively, in order to keep the consecutive percentage the same. Given the closeness of this issue, the district court erred in denying this claim without a hearing. Accordingly, we vacate this portion of the district court's order and remand for further proceedings. 

At Pages 7 -8 of the 2019 4Cir Opinion

2020 4Cir Opinion

On a third round of appeal to the 4Cir, United States of America, Plaintiff/Appellee, v. Jeffrey A. Martinovich, Defendant/Appellant (Opinion, 4Cir, 19-6797/ April 7, 2020) (the "2020 4Cir Opinion"), 
Martinovich, arguing pro se, was heard on the following issues:

whether Martinovich received ineffective assistance of counsel when his attorney failed to object to (1) judicial interference at trial and (2) testimony regarding the Financial Industry Regulation Authority's ("FINRA") investigation into and settlement with Martinovich. 

At Page 2 of the 2020 4Cir Opinion

By way of just cutting to the chase, the 4Cir affirmed EDVA's Order pertaining to judicial interference and the testimony regarding the FINRA investigation/settlement. Further, 4Cir granted Martinovich's motion for leave to file a reply to the Government's response to his motion to strike its brief.

In addressing Martinovich's ineffective assistance of counsel assertions, 4Cir barely disguises its impatience and perhaps frustration:

Martinovich first argues that his counsel was ineffective for failing to object to the trial court's interference in the trial. We conclude that, even if counsel was ineffective for failing to object to the trial court's "ill-advised comments and interference," United States v. Martinovich, 810 F.3d 232, 239 (4th Cir. 2016), Martinovich has failed to show prejudice. We found on direct appeal that the trial court's errors were not prejudicial under plain error review given the trial court's curative instruction that the court's opinions were not important, the "overwhelming" evidence, the split verdict, and counsel's failure to object. . . . 

At Page 3 of the 2020 4Cir Opinion

As to the FINRA matters, 4Cir offers this commentary:

Turning to the FINRA claim, Martinovich entered into a settlement agreement with FINRA, agreeing to surrender his license. However, he did not "admit or deny the allegations." The parties agreed that "they may reference the FINRA investigation"; however, "in an abundance of caution," the parties further agreed not to "reference the settlement agreement." The parties were concerned that such evidence might run afoul of Fed. R. Evid. 408(a)(1), which prohibits conduct and statements made during compromise negotiations. 

Martinovich asserts that his attorney was ineffective for failing to object or move for a mistrial, when a Government witness testified that he knew that Martinovich's brokerage firm was shut down because the witness received a letter from FINRA stating that FINRA was revoking Martinovich's license. Martinovich also asserts that his attorney should have objected to the trial court's attempt at a curative instruction, whereby the court said that 

[a]ny investigation by any other entity or body is not before you and, therefore, should thought be considered in this case. That's not to say that -- just what that investigation is or was not is not to be considered by you. However, you may consider the fact that the defendant's organization was put out of business -- was out of business. What caused that is not before you. 

Martinovich also contends that the lack of objection caused the later denial of his motion for a new trial. 

Throughout the trial, Martinovich's counsel (and Martinovich, in his testimony) attempted to portray Martinovich as a victim of the economic downturn, contending that his firm closed on this basis. It appears counsel's strategy was to discuss the "results" of the FINRA investigation, without tying them to the investigation, in order to blame this result on forces and people aside from Martinovich. The stipulation expressly permitted discussion of the fact of the investigation itself, and that fact was before the jury when Martinovich's counsel used evidence from the investigation to impeach witnesses. Thus, Martinovich does not challenge the admission of the fact of the investigation or the admission of the results of the investigation; instead, he challenges the admission of causation, that is, that the investigation caused the results. However, while counsel did not object at the time of the testimony, he did raise the issue with the court the next day and requested a curative instruction. Counsel received a curative instruction, albeit not exactly the one requested. He later moved for a new trial on this basis. Affording counsel the deference due, we conclude that his actions were not unreasonable. Moreover, Martinovich has not shown how he was prejudiced by a single sentence tying the results to the investigation, in light of the trial court's curative instruction and the overwhelming evidence against Martinovich. As such, we affirm the district court's rejection of this claim.

At Pages 4 - 5 of the 2020 4Cir Opinion

Bill Singer's Comment

Is that all there is? Are we done -- as in, you know, like, really done? Who the hell knows?