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A.G. Schneiderman Announces Lawsuit Against Queens Investment Adviser For Allegedly Defrauding Elderly New Yorkers

News from Attorney General Eric T. Schneiderman

FOR IMMEDIATE RELEASE
June 14, 2017

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A.G. SCHNEIDERMAN ANNOUNCES LAWSUIT AGAINST QUEENS INVESTMENT ADVISER FOR ALLEGEDLY DEFRAUDING ELDERLY NEW YORKERS

As AG’s Complaint Alleges, Dean Mustaphalli’s Risky Investments Caused Clients To Lose $10 Million In Retirement Savings

Complaint Also Alleges Mustaphalli Siphoned Money Out Of The Hedge Fund For His Own Personal Use

NEW YORK – Attorney General Eric T. Schneiderman today announced a lawsuit against Dean Mustaphalli and several of the entities he controls for allegedly engaging in a six-year scheme to defraud New Yorkers—many of whom were elderly and at or near retirement—out of millions of dollars of their savings. The suit alleges that Mustaphalli caused his clients to invest in his hedge fund where he engaged in a highly speculative and risky trading strategy— against their interest and without their knowledge. The complaint alleges that Mustaphalli knew that his trading strategy for the hedge fund was unsuitable for his clients, who were interested in more conservative investments, and that this caused his clients to suffer devastating losses. 

The Attorney General alleges that since 2011, Mustaphalli caused 58 New York investors to invest a total of more than $11 million in his hedge fund, $10 million of which was lost by engaging in a highly risky trading strategy that was not consistent with his clients’ investment profiles and objectives. In addition, the Attorney General alleges that Mustaphalli took an additional $100,000 from his hedge fund to pay for his own personal expenses. While the investigation of Mustaphalli was ongoing, Attorney General Schneiderman sought and obtained two orders from New York Supreme Court freezing accounts of Mustaphalli’s entities and prohibiting them and Mustaphalli from offering investment advice in New York.

“It is shameful to rip-off elderly New Yorkers who are trying to plan for retirement,” said Attorney General Schneiderman. “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.”

Mustaphalli’s scheme targeted elderly New Yorkers who had been his investment advisory clients for many years before he opened his hedge fund, and who had very little prior investment experience. As their investment adviser, Mustaphalli knew that these investors had relatively conservative investment objectives.

Beginning in 2010, having been repeatedly put under heightened supervision by his prior employers due to client complaints - and later having been suspended from the securities industry—Mustaphalli moved his clients’ assets to a platform that would conceal his risky trading activity. Without explanation, and simply saying that the fund would be “better” for clients, Mustaphalli diverted his clients’ relatively safe investment portfolios to a hedge fund run solely by Mustaphalli. Mustaphalli then proceeded to lose the vast majority of his clients’ money on speculative options trading and other highly levered strategies. When the hedge fund assets had dwindled such that they did not generate substantial management fees, Mustaphalli transferred $100,000 out of the fund, through shell companies, to pay for his own personal expenses. Mustaphalli sought to deflect blame for the losses, allegedly telling investors that the losses were due to “oil, bad markets and the election.” Mustaphalli even promised one investor “if Hillary wins, you’ll get your money back.” He told yet another investor that “Brexit” was to blame for the Fund’s losses.

The full Complaint filed today in New York State Supreme Court is available here.

Attorney General Schneiderman thanks the Financial Industry Regulatory Authority (FINRA) for providing information helpful to the investigation.

The investigation of this matter was handled by Assistant Attorney General Kenneth J. Haim of the Attorney General’s Investor Protection Bureau under the supervision of Investor Protection Bureau Chief Katherine C. Milgram. Senior Enforcement Counsel for Economic Justice Steven Glassman, Assistant Attorney General Tanya Trakht, Investigator Brian Metz, and Legal Assistant Eddie Aguilar also assisted with the investigation. The Investor Protection Bureau is overseen by Executive Deputy Attorney General for Economic Justice Manisha M. Sheth. 

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