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Confessions of a Barred Broker

Jeffrey Martinovich, at one time the CEO of MICG Investment Management, sits at home in Norfolk, Va., only a few miles from the offices of the now shuttered billion-dollar boutique investment company he founded in 1992. After being convicted of several counts of fraud in 2013 and serving 6 1/2 years of his 14-year sentence in prison, the former investment manager is completing his term in home confinement. An ankle monitor on his left ankle keeps tabs on his movements.

Over the years, I’ve attempted to interview a dozen or so white-collar felons. None agreed to talk to me. Without exception, the former inmates desperately wanted to put the ordeal of prison behind them. Most were broken physically, mentally and financially. After completing their sentences—which ranged from 48 to 160 months—most of the ex-inmates I knew were friendless, embittered and, though no longer incarcerated, in many ways still caged by their ordeal. 

Martinovich is different. A youthful looking 55, he’s trim and athletic with the clean-cut energy of an overly eager Eagle Scout. He is relentlessly upbeat. Remarkably, since his release from prison, Martinovich has reconnected with his family, remarried and is working as a management consultant, though he has been barred by the Financial Industry Regulatory Authority from any role in selling securities or associating with FINRA members.

Martinovich refuses to be defined by his losses, and those losses are considerable. In addition to the nearly seven years in prison, he lost the company he founded, his first marriage, his reputation among many (but not all) of his peers, his board assignments, his charitable honors, his wealth, his homes and the Las Vegas vacations—the excesses of which the government used as evidence of his wrongdoing.

Yet after all that, he says he doesn’t miss the trappings of his former fat-cat CEO life. He does feel he was given a raw deal by the regulators and a justice system trying to refurbish its reputation with an angry public in the wake of the financial crisis, where many shareholders lost money in elaborate financial schemes engineered by big Wall Street players, only to see those institutions bailed out and no senior executives held accountable in public courts.

Timing Is Everything

Martinovich’s troubles began in 2008. The financial markets were melting down following revelations that so many banks mispriced mortgage-backed securities. The resulting recession collectively destroyed over $30 trillion of wealth around the world. In other countries, financial services executives went to jail. In the U.S. only one low-level banker took the fall. While the feds extracted billions of dollars in fines, no Wall Street executive went to prison. Later that year, Bernie Madoff’s pyramid scheme collapsed, embarrassing regulators who, in hindsight, missed obvious red flags. The public screamed for accountability.

Martinovich didn’t think any of that applied to him. MICG Investment Management was 16 years old and thriving, with 100 associates in eight branch offices, handling 9,000 accounts in 46 states and five countries. It was a mostly plain-vanilla investment firm with a small hedge fund operation.

Then came an innocent-sounding request from the Philadelphia FINRA office. FINRA was testing a new regulatory system in conjunction with the SEC designed to manage the quarterly and annual exam requirements that all broker/dealers must submit. Would MICG agree to serve as a beta test site for the new system? Martinovich felt the request meant FINRA regarded MICG as a model broker/dealer. To his regret, he agreed, and dutifully sent the FINRA regulatory exam team thousands of MICG documents and emails. 

“I was naive,” Martinovich admits. “I wish I had been more educated on the peril I was facing. I believed in the system. I couldn’t have been more deluded.” Some months later, FINRA informed Martinovich that it needed the MICG management team to come to Philadelphia to answer questions. It was only now that Martinovich sensed danger. Based on the emails MICG had provided, FINRA found something suspicious in the firm’s valuations of certain assets in its hedge fund. Martinovich’s lawyers speculated that FINRA’s agenda was to show the American public it was doing something to police broker/dealers. Martinovich offered to adjust any pricing of any security FINRA felt was mispriced, but FINRA was unrelenting. Martinovich concluded that MICG was just the right size for a zealous FINRA to target: not so small as not to matter, but not big enough to have the resources to fight back.

FINRA demanded that Martinovich sign a settlement offer. If he refused, FINRA threatened to fine the company $1 million and yank the brokerage licenses of the MICG team members. Martinovich concluded there was nothing left to defend, so he signed the letter. The Feb. 3, 2011, Order Accepting Offer of Settlement can be found here. “I’ve regretted signing the letter ever since,” he says.

On a Friday at 4 p.m., FINRA issued an order reclassifying the firm’s equity as debt. MICG had until the following Monday morning to deposit millions of dollars to bring the firm back into capital compliance, capital it didn’t have. The following Monday, FINRA’s Philadelphia office refused to answer his frantic telephone calls. He dared not open for business. At 9:25 a.m. on May 5, 2011, Martinovich surrendered. Before the markets opened, he withdrew the firm’s broker/dealer license. On that day, after 18 years in business, MICG Investment Management dissolved. Martinovich thought—and had been assured—that this administrative penalty, as grave as it was, would be the end of the matter.

He was wrong. FINRA referred the matter to the Department of Justice. A federal grand jury in Norfolk, Va., returned a criminal indictment of 26 counts, including engaging in monetary transactions in property derived from specific unlawful activity as well as conspiracy to commit mail and wire fraud. The specific unlawful activity underlying these charges alleged that MICG assigned unjustifiably high values to the shares of a solar energy company held in one of the firm’s hedge funds.

The government alleged that the overvaluation inflated Martinovich’s management fee by $140,000. Six months later, five police officers with weapons drawn arrested Martinovich in a dawn raid. His company destroyed, barred for life, the ordeal of Jeffrey Martinovich had just begun.  

Take His Chances

Over 89% of defendants in federal cases plead guilty. Martinovich decided to take his chances at trial. In the months preceding the trial, the government offered Martinovich at least three plea deals. First, the U.S. attorney offered Martinovich seven years in exchange for a guilty plea. He rejected the deal. A deal to serve five years in exchange for a guilty plea was likewise rejected. On the eve of the trial, the feds sweetened the deal to three years—out in 14 months. All he had to do was plead guilty and, in open court, give an allocution statement. In an allocution, a defendant admits in detail their wrongdoing, accepts responsibility and typically expresses remorse. According to a 2014 study of federal judges, 84% of defendants in federal court exercise their right to allocution.

Martinovich maintains that his decision to plead not guilty was a principled one. This is a man who can do without many things; honor is not one of them. Martinovich graduated from the Air Force Academy and then served five years, including service in the first Gulf War, before starting MICG.

To Martinovich, the honor code instilled at the Air Force Academy (“We will not lie, steal or cheat, nor tolerate among us anyone who does.”) precluded him from admitting that he committed certain crimes when every impulse told him he had not. “To accept a plea, I would have to stand in open court and admit that I had defrauded my clients, shareholders and the people who trusted me to take care of them,” Martinovich says. “All the values I had instilled in my own son would now mean nothing if through the toughest challenge of my life, I didn’t do what was right, simply because it was expedient.”

Martinovich believed that if he could just explain matters to a jury, everything would work out. And why not? He was widely regarded as a supremely confident and charismatic leader. He had talked his way out of difficulties before. So Martinovich ignored multiple offers to settle and went to trial. It’s a miscalculation for which he continues to pay.

Jeff Martinovich and his new wife, Ashleigh

The Trial

The trial began in federal court in Newport News, Va., on April 10, 2013. After four weeks of testimony, dozens of witnesses and hundreds of exhibits, Martinovich still believed he had a chance of winning. The jury deliberated for three days before declaring itself deadlocked.

The judge refused to accept an undecided jury and ordered them to reach a verdict. They returned to deliberate and hours later convicted Martinovich of one count of conspiracy, four counts of wire fraud, five counts of mail fraud and six counts of money laundering. He had misjudged the zeal and hardball tactics of the prosecutors and now he would know his sentence.

Martinovich was initially sentenced to 140 months (11 years, eight months) in prison, and, after an appeal, his sentence was increased to 164 months (13 years, eight months). He reported to prison in Morgantown, W. Va., on Nov. 12, 2013. Although he was a first-time, nonviolent offender, the Bureau of Prisons sent then him not to one of the minimum-security prison camps generally the destination of nonviolent professionals convicted of white-collar crimes, but to a higher-security prison in Fort Dix, N.J. He subsequently spent 2,381 nights incarcerated in various prisons before being released to home confinement in 2020 as part of the Bureau of Prisons’ response to the COVID-19 pandemic.

  For federal inmates, one upside of the pandemic is that the Bureau of Prisons released thousands of nonviolent prisoners such as Martinovich to serve their terms under home confinement while the pandemic raged. He can be yanked back into detention at any time, as indeed he once was (see sidebar “How Could I Have Escaped If I Was Home the Whole Time?”).

Mistakes, Misjudgments and Blunders

After having interviewed Martinovich at length and studied the court transcripts, my own takeaway is that he was very badly represented by his legal team (a conclusion with which Martinovich heartily agrees). He was found guilty of the charges against him. I wasn’t in the courtroom, so I don’t know if the jury got it wrong or right.

The government presented strained testimony that the shares of the solar energy company were overvalued. The defense presented testimony that the valuations were fair. A perplexed jury struggled to make sense of the impenetrable testimony and exhibits. My opinion is that the merits of the case against Martinovich seemed both shaky and, in the context of the losses of the 2008 financial crisis, curiously inconsequential. The government based much of its indictment on allegations that the fraud unjustly enriched Martinovich by $140,000, a windfall that might impress a juror but for federal prosecutors is a laughably modest sum.

I think any reasonable examination of the agendas driving the case would conclude that the train had left the station and there was nothing Martinovich could do to stop it. He could hop on the train that led directly to a manageable prison term or he could put his body squarely in the path of the train. Had Martinovich accepted responsibility for his share of the dispute by holding his nose and pleading guilty, he could have recovered a decade of his most productive years. Pleading guilty to charges you feel you didn’t commit is a difficult decision. But given the judicial system in the United States, which relies overwhelmingly on extracting settlements from defendants and hammering those who are found guilty after insisting on their right to a trial by jury, for many defendants, pleading guilty is often the most pragmatic decision. 

A constant source of worry had been that the Bureau of Prisons will yank him out of home confinement as the COVID-19 emergency subsides. A reassuring development: In December 2021, the Department of Justice reversed a Trump-era decision that would have sent many of the thousands of inmates released to home confinement during the pandemic back to prison when the pandemic abates. The new policy will allow those currently serving home confinement to do so until their sentences are completed.

For now, Martinovich is happy and productive. He is living with his wife, Ashleigh, who recently gave birth to a baby daughter. He is working as the CEO of JAM Accelerator LLC and is busy consulting, coaching entrepreneurs, writing and speaking. He is writing a book about how leaders can overcome adversity. His chief goal now is to honor the terms of his home confinement so that he can support his family.

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