Faced with mounting losses in a hedge fund he recommended to his elderly clients, adviser Dean Mustaphalli allegedly blamed falling oil prices, Brexit and the 2016 presidential election.
"If Hillary wins, you'll get your money back," Mustaphalli told one investor, according to prosecutors.
But authorities assign the fault to Mustaphalli, accusing him of defrauding his clients of millions, and of using at least $100,000 of their funds to pay for personal expenses.
"It is shameful to rip-off elderly New Yorkers who are trying to plan for retirement," said New York Attorney General Eric Schneiderman in a statement.
Schneiderman filed a complaint against the former independent adviser Wednesday.
"As we allege, Dean Mustaphalli squandered and looted $10 million from hardworking individuals. New Yorkers deserve to know that their investments are safe — and financial professionals who won't play by the rules will face consequences," New York's top lawman said.
Mustaphalli, who became an independent adviser after leaving Citigroup in 2009, could not be reached for comment. It was not clear if he had an attorney.
"New Yorkers deserve to know that their investments are safe — and financial professionals who won't play by the rules will face consequences," New York Attorney General Eric Schneiderman said.
'A NEAR TOTAL LOSS'
After leaving the bank, the Queens, New York-based adviser advised his clients to invest in a hedge fund he started and named after himself: the Mustaphalli Fund.
Authorities charge that Mustaphalli, who ran an eponymously-named firm, misrepresented the nature of this investment, particularly its "risky, short-term trading strategies," which focused on options trading. They also say he asked clients to "sign account-opening documents without explaining the consequences of signing such documents." Mustaphalli also falsified documents so that clients would appear to be accredited investors as the law required, prosecutors say.
The fund performed abysmally, according to authorities; for example, in 2012, it lost $6.6 million, a 92% loss in only one year.
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"By December 2014, the fund’s historical performance reflected a net return of negative 97.6%, a near total loss," authorities said.
When clients complained about losses, Mustaphalli faulted market conditions. One investor said she wanted to allocate her funds to less risky investments; Mustaphalli assured her the fund would stabilize in a few weeks, according to prosecutors. He told another client that losses were due to "oil, bad markets and the election."
He is further accused of misrepresenting the strategy he was employing, by, among other tactics, not providing clients with detailed account statements.
Richard Chambers is the CEO of Richard F. Chambers & Associates, a global advisory firm for internal audit professionals, and also serves as senior advisor of risk and audit at
Joe Nestlerode is a partner at Alpha FMC with over 28 years of industry experience in senior technology and business roles in the wealth management industry.
He has overseen large strategic engagements including M&A, advisor platform development, client portal design and development and capability optimizations across front-, middle- and back-office functions. Prior to joining Alpha FMC, he was a product and technology executive for the RIA, IBD and 1099 channels at Wells Fargo Advisors.
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In 2014, FINRA suspended Mustaphalli for two years for operating the fund without his prior firm's permission while he was registered there, and for impeding the regulator's investigation, according to a note contained with his BrokerCheck record. Without admitting or denying the allegations, he consented to the regulator's sanctions.
Also in that same year, Mustaphalli let his New York investment adviser registration lapse, but continued to service clients and collect fees from them, prosecutors say.
Although he found new investors in 2015, by the following year, the fund's assets had dwindled down to $1 million.
Mustaphalli, meanwhile, started making payments to a shell company he controlled for research, but authorities say there is no credible evidence any research was generated. Instead, money was spent on his personal expenses, they charge.
Through the same holding company, Mustaphalli also allegedly spent $4,500 to sponsor a cricket club he owned.
New York's attorney general is now seeking a permanent injunction to bar Mustaphalli from engaging in any business activity related to investment advice as well as the return of investors' funds. A court date has not yet been set.
