The securities fraud attorneys at Gana LLP have recently filed a complaint on behalf of a client alleging that Dean Mustaphalli (Mustaphalli) engaged in securities fraud. The claim was brought against brokerage firms Sterne Agee Financial Services, Inc. (Sterne Agee) and Interactive Brokers LLC (Interactive Brokers) alleging that the firms failed to supervise Mustaphalli’s misconduct.
The complaint alleges that starting in December 2009, Mustaphalli established a securities related outside business activity (OBA) in the form an advisory firm and a hedge fund. Mustaphalli registered the investment advisor with the SEC under the name Mustaphalli Advisory Group, LLC (MAG) until December 2014. Subsequently, Mustaphalli filed a From D with the SEC in January 2011 for a hedge fund called Mustaphalli Capital Partners Fund, L.P. (MCPF) and opened an account for the fund.
The complaint alleged that Mustaphalli failed to inform Sterne Agee of his transactions through MCPF although Mustaphalli did disclose the MAG RIA. The complaint also alleges that in or around mid-2014 Mustaphalli transferred MAG’s accounts and the MCPF account to Interactive Brokers. Also around May 2013 FINRA began investigating Mustaphalli’s, MAG’s, and MCPF’s activities. In December 2014, FINRA suspended Mustaphalli for two years and imposed a fine and disgorgement for engaging in private securities transactions through MCPF without notifying Sterne Agee. Dep’t of Enforcement v. Dean Mustaphalli, AWC No. 2013036880302 (Dec. 15, 2014).
Despite these developments, the complaint alleged that Interactive Brokers continued to allow Mustaphalli to trade MAG accounts and MCPF through IB and to take advantage of his clients in various was such as charge excessive advisory fees and control funds without client knowledge or approval. It was further alleged that around this time Mustaphalli took excessive risks with MCPF’s funds causing the hedge fund to be virtually wiped out. In sum, the complaint alleged that despite the numerous red flags of misconduct, the brokerage firms involved failed to supervise, monitor, and detect Mustaphalli’s MCPF investment scheme.
The claimant in this case is 86 years old and has a high school education. Claimant met Mustaphalli when he worked for Citibank many years ago and began her financial advisor at that time. The complaint alleges that in early 2015, Mustaphalli recommended that the claimants begin taking away assets from the claimant’s husband – 87 years old – so that he could enroll in Medicaid and receive free nursing care. The complaint alleged that Mustaphalli recommended an attorney, a reverse mortgage, and to move all funds into a trust. The trust was then invested in MCPF. The complaint alleges that Mustaphalli never explained to claimants that their funds would be invested in a high risk hedge fund without proper registration. The only explanation Mustaphalli provided was that the investments would be in stocks and bonds. Indeed, claimants alleged that they never received a PPM from MCPF or any other document explaining or discussing the risks.
Gana LLP’s securities fraud attorneys represent investors who have suffered securities losses due to the mishandling of their accounts due to claims of fraud and negligence. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.