Ex-advisor hit with 99-count criminal indictment
To carry out a fraud scheme that cost clients millions, a former independent advisor allegedly forged signatures on account documents, submitted fake email addresses and misled investors about the nature of a hedge fund whose value at one point tanked 80%.
Now the ex-broker is facing criminal charges on 99 counts over the $5 million fraud scheme, according to the New York Attorney General's Office, which filed the charges Wednesday against the ex-broker in state Supreme Court in Queens.
"New Yorkers should be able to trust the people they turn to for investment advice," Attorney General Barbara Underwood said in a statement. "Yet, as we allege, Dean Mustaphalli deceived the clients that trusted him ― looting and squandering millions from senior New Yorkers who relied on those savings."
Mustaphalli's attorney, Robert C. Gottlieb, contested the charges against his client.
"Mr. Mustaphalli stated very clearly in court yesterday that he is not guilty of the crimes charged in the indictment and will fight those allegations in the courtroom. The $2 million bail is outrageous. Mr. Mustaphalli has been aware of the Attorney General’s investigation since 2014 and has appeared in civil court with the Attorney General on these same allegations many times without failure. We intend to fight the imposition of this unreasonable bail," Gottlieb said in a statement.
The criminal indictment, which covers alleged misconduct from June 2014 to March 2017, comes almost a year after the Attorney General's office filed a separate civil lawsuit against Mustaphalli.
A former client, Peter Hatzioannides, is also suing Mustaphalli for alleged fraud and breach of fiduciary among other purported misconduct. Hatzioannides says he invested about $100,000 with Mustaphalli, eventually losing all but $7,540, according to court documents.
“Justice delayed, however, may be justice denied for many of Mustaphalli's victims. The money that was not frozen by the AG's office in their civil case has likely mostly been spent and what's left will continue to be spent on legal fees as his criminal case progresses,” says Elizabeth Goldman, an attorney representing Hatzioannides and director of the Securities Law Clinic at Cardozo School of Law.
Hatzioannides is seeking damages of $98,000 plus interest and costs, per court documents.
Mustaphalli was a registered advisor from 1996 to 2011, having last worked at Sterne Agee, according to FINRA BrokerCheck records.
Prosecutors charge that he solicited elderly clients, some of whom he had served while a registered broker, investing their money into a hedge fund that he opened: Mustaphalli Capital Partners Fund.
One couple in their eighties invested more than $700,000 with the alleged schemers, representing almost the entirety of their cashed-out pension, regulators say.April 10
Overall, the advisor defrauded at least nine clients out of $1 million, which he used to pay for tuition and mortgage payments, federal prosecutors say.May 8
To carry out his alleged fraud, the former broker forged account opening documents and submitted fake email addresses on behalf of clients, according to prosecutors. Mustaphalli provided clients with only the signature pages of fund documents. In some cases, he also forged initials on documents attesting that clients had accredited investor status, indicating that their net worth exceeded $1 million, prosecutors say. In fact, almost none of his clients had such wealth.
Mustaphalli's hedge fund engaged in risky strategies that lost clients millions, prosecutors say. For instance, he allegedly made a $2.5 million investment based on the volatility of the price of Mastercard stock, costing clients over $2 million in a single trade.
By December 2015, his fund lost about 80% of its value.
In conversations with clients, Mustaphalli allegedly pinned the blame on bad markets, Brexit and the presidential election.
"If Hillary wins, you'll get your money back," Mustaphalli told one investor, according to prosecutors.
Mustaphalli has been arraigned in court and bail was set at $2 million cash or bond.
The New York Attorney General's Office credited FINRA with aiding their investigation. In 2014, FINRA suspended him for two years.
--With additional reporting by Sean Allocca.