Mustaphalli Advisory Group

The securities fraud attorneys at Gana Weinstein 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).

The attorneys at Gana Weinstein LLP are investigating claims that former Sterne Agee Financial Services Inc. (Sterne Agee) broker Dean Mustaphalli (Mustaphalli) solicited millions of dollars from investors running to run a $6 million hedge fund on the side without formerly disclosing the activity to his brokerage firm. As reported by InvestmentNews, the Financial Industry Regulatory Authority (FINRA) charged Mustaphalli for founding and receiving commissions from a hedge fund he created called Mustaphalli Capital Partners in or about 2011 without informing his. Mustaphalli sold the investment through his registered investment advisory firm, Mustaphalli Advisory Group.

According to allegations made, Mustaphalli solicited money for the fund from at least 25 investors over six months during 2011. The fund invested in publicly traded equity and debt securities has since declined by approximately 90% according to investors. At least some of Mustaphalli’s clients were direct customers of Sterne Agee as well. According to FINRA, Mustaphalli was not cooperating with the agencies requests to provide account statements for the hedge fund. Typically in these cases if a broker does not cooperate with FINRA’s department of enforcement and the agency proves he withheld information the broker would be barred from the securities industry among other remedies that could be imposed.

Mustaphalli disclosed the existence of the Mustaphalli Advisory to Sterne Agee but did not disclose that he was managing the hedge fund through the firm according to FINRA. However, under the FINRA rules, brokers must fully disclose hedge funds for approval to their member firm and be supervised by the firm under Rule 3040.

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