Securities Lawyers Blog
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.
Mustaphalli had been in the securities industry for 14 years. Prior to Sterne Agee, Mustaphalli was registered with Citigroup Global Markets Inc. FINRA also has a second investigation pending against Mustaphalli concerning his activities while at Citigroup. The complaint involves allegations concerning unsuitable transactions regarding variable annuities from 2007 to 2009.
The allegations against Mustaphalli are commonly referred to in the industry as a “selling away” violation. Selling away securities broker solicits securities that were not first approved by the broker’s firm. Brokerage firms owe a duty to investors and the public to properly supervise its employees to ensure that their activities do not take advantage of the trust placed in them. Selling away often occurs when brokerage firms either fail to put in place a reasonable supervisory system or fail to implement their supervisory requirements. Victims of selling away are unaware that the advisor’s activity is not authorized and potentially illegal. In addition, the investor does not learn that the broker’s activities are not proper until the investment scheme is publicized, the investment losses mount, or the broker simply shuts down shop and stops returning client calls.
The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of selling away and brokerage firms’ failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.