A Forest Hills, N.Y., hedge fund manager has been indicted for losing $11 million that clients—many of them elderly, unsophisticated investors—had entrusted him with, the New York attorney general announced Wednesday.
Dean S. Mustaphalli, the owner of Mustaphalli Capital Partners Fund, has been criminally charged with 99 counts of fraud and other charges. A year ago, he was charged in a civil complaint for the same scheme, which involved “looting and squandering millions from senior New Yorkers who relied on those savings,” New York Attorney General Barbara Underwood said.
The victims first met Mustaphalli, a former employee of Citigroup Global Markets Inc., when they visited a Citigroup bank to take care of routine banking matters, the attorney general and the complaint said. Over a period of several years ending in 2017, he invested their savings in his hedge fund without their knowledge or consent, the complaint said. The hedge fund collapsed, losing 92 percent of its value and losing $11 million of the $12 million in client money he put into the fund, the complaint said, adding that many of the victims live in an affordable housing complex in Queens.
Mustaphalli was charged with grand larceny, forgery and securities fraud and faces up to 20 years in prison under the indictment unsealed in Queens Supreme Court Tuesday.
“New Yorkers should be able to trust the people they turn to for investment advice,” Underwood said. “Dean Mustaphalli deceived the clients that trusted him, [taking] millions from senior New Yorkers who relied on those savings.”
The details of the scheme include Mustaphalli allegedly moving his clients’ assets to a platform that would conceal his risky trading activity. Without explanation, and simply telling clients the fund would be “better” for them, Mustaphalli allegedly diverted his clients’ relatively safe investment portfolios to a hedge fund run solely by him, the attorney general said.
According to the indictment and to statements made by prosecutors at arraignment, after losing almost $7 million of investor money, Mustaphalli allegedly brought 22 new clients into his hedge fund by 2015, collecting $5 million in additional investor funds. Mustaphalli allegedly forged account opening documents and submitted fake email addresses for his clients, many of whom did not even know how to operate a computer. Mustaphalli’s clients allegedly had no idea that their retirement monies were being transferred into an extremely high-risk investment, much less to a hedge fund, prosecutors said.
Mustaphalli allegedly told investors the losses were due to “oil, bad markets and the election,” according to the complaint. Mustaphalli allegedly promised one investor, “If Hillary wins, you’ll get your money back,” and told another that “Brexit” was to blame for the fund’s losses, the attorney general said.