investor has filed a $1.45 million lawsuit against financial services firm MICG Investment Management, its CEO and the firm that provided MICG's audits and accounting services.
Hatten of Newport News, contends in the suit that MICG and CEO Jeffrey A. Martinovich misrepresented and omitted information about her investments in three hedge funds and in MICG stock, and failed to liquidate her investments when requested.
Hatten is the second investor to sue the troubled financial firm, which had offices in Newport News, Norfolk, Richmond, Alexandria and
MICG and Martinovich are the subject of charges issued by the Financial Industry Regulatory Authority, or Finra, that accuse the firm of several securities violations, including fraud. MICG has shuttered its brokerage business and it has withdrawn its broker-dealer registration with Finra and the Securities and Exchange Commission.
In her complaint, Hatten alleges that Martinovich and MICG committed fraud, breached their contracts and fiduciary duty, wrongfully withheld property belonging to Hatten and the Shirley A. Hatten Living Trust, and were negligent.
The suit also accuses MICG's former auditor and accountant Harbinger PLC and the firm's lone partner, Michael T. Umscheid, of constructive fraud, aiding and abetting fraud and breach of fiduciary duty.
Starting in 2006, Hatten invested $100,000 each in the MICG Partners and Anchor Strategies hedge funds and $400,000 in MICG's Venture Strategies hedge fund, according to the complaint. She also purchased 16,667.67 shares of MICG Wealth Management LLC for $500,000, which amounted to a 1.44 percent stake in the firm.
MICG Wealth Management is the parent company that owns MICG Investment Management.
Hatten is seeking to recover the $1.1 million she invested in those funds and investments, $350,000 in punitive damages along with interest and legal fees. She also is asking the court to order an accounting of the investments.
Martinovich and his attorney did not respond to a request for comment about the lawsuit.
In the 27-page complaint, Hatten says Martinovich used her investments in the three hedge funds to "enrich himself to the detriment of her."
Investors in Anchor Strategies have since fired MICG as fund manager.
MICG's Venture Strategies fund is the subject of civil charges issued last week by an independent securities regulator that accuses MICG and Martinovich of securities fraud, misusing investors' funds and issuing false account statements. As of Dec. 31, 2008, the Partners fund reported that 51.35 percent of its investments were in Venture Strategies.
Part of Hatten's suit centers on the same contentions contained in a complaint issued last week by Finra, an independent securities regulator.
Both Finra and Hatten contend that MICG and Martinovich assigned inflated values to two businesses owned by Venture Strategies and used those inflated valuations to charge investors unjustifiably high management and incentive fees.
In the complaint, Hatten says the inflated valuation of the Venture Strategies fund also contributed to higher management fees charged by the Partners fund.
The suit also alleges that Martinovich misrepresented the nature of a third hedge fund, Anchor Strategies.
Because most of Anchor Strategies' investments were in a holding company called Tiptree Financial Partners LP, the management and incentive fees that Anchor paid to MICG Investment Management "were effectually windfalls, in that the success of Tiptree had nothing to do with purported management by MICG," the complaint says.
Anchor paid MICG $32,657 in management fees and $8,649 in incentive fees in 2008, according to the suit.
Hatten also claims that Martinovich persuaded her to invest $500,000 in stock of MICG itself. According to the complaint, Martinovich was her financial adviser and investment manager at the time.
Martinovich told Hatten her Wealth Management investment would increase in value as he expanded the firm's market reach, according to the complaint. Instead, the suit contends, Martinovich raised the money to buy out another firm's stake in MICG and to provide the firm with working capital.
As such, Martinovich's representations "were intentionally false and made for the sole purpose of inducing Hatten to inject much-needed funds into Martinovich's troubled entity," the suit says.
Though the suit does not identify the firm, MICG was affiliated with Newport News financial consulting and accounting firm Witt Mares PLC in the early 2000s, according to public records.
The suit also takes aim at Harbinger PLC and its lone-partner, Umscheid.
Hatten contends that Umscheid was listed as MICG's chief financial officer in January 2009. Three months later, he prepared an independent auditor's report for the Venture Strategies hedge fund, and in June 2009 he prepared similar reports for Anchor Strategies and MICG Partners.
Umscheid, who was listed as MICG's director of finance on the firm's website until this month, was "conflicted in (his) role of assisting with accounting services for (MICG) and being a purported independent auditor" of several financial statements for MICG's three hedge funds, the complaint says.