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Ex-Citi Investment Adviser Hit With Massive Indictment

Nearly 10 years after he left Citigroup in the midst of an internal review, an investment adviser accused of defrauding elderly clients was hit Wednesday with a 99-count criminal indictment.

QUEENS, N.Y. (CN) - Nearly 10 years after he left Citigroup in the midst of an internal review, an investment adviser accused of defrauding elderly clients was hit Wednesday with a 99-count criminal indictment.

New York Attorney General Barbara Underwood unsealed the charges this morning against Dean Mustaphalli in the first press conference of her term.

While 48-year-old Mustaphalli was arraigned Tuesday in Queens, he has spent the last 11 months fighting related civil charges in Manhattan.

That complaint explained that Mustaphalli opened his own firm, Mustaphalli Advisory Group, after resigning in 2009 from a Citibank branch in Jamaica, Queens, where he had worked since 1998.

Though Citi had fielded what the complaint calls “a flurry of client complaints against him,” Mustaphalli wound up bringing many of his former clients to his new firm.

“They were nurses, shop keepers, homemakers, municipal workers,” Underwood said Wednesday. “They had played by the rules putting away a few dollars here and there to make sure they’d have enough for a relatively comfortable retirement. They were not big-time investors.”

More importantly, Underwood added Wednesday, they “liked him and they trusted him.”

The 2017 complaint accused Mustaphalli of losing about $10 million from the $11 million that 58 clients invested with his hedge fund between 2012 and 2014. Today’s indictment meanwhile says that Mustaphalli brought an additional 22 clients into the fold by 2015 and squandered another $5 million through March 2017.

“He didn’t stop in the face of these devastating losses,” Underwood said at the press conference. “Instead he doubled down.”

Though prosecutors have been able to recover some of the funds for the victims, Underwood said the clients have only gotten back about 20 cents on the dollar.

Represented by Robert Gottlieb of the firm Gottlieb & Janey, Mustaphalli pleaded not guilty Tuesday to the new charges in Queens.

In an email Wednesday, Gottlieb called the $2 million cash bail set by Judge Douglas Wong “outrageous.”

“Mr. Mustaphalli has been aware of the attorney general's investigation of these same allegations since 2014 and has turned over to the attorney general over 3,000 documents,” Gottlieb added. “He has appeared in civil court in related civil proceedings for years without fail. There is absolutely no basis for such unreasonable, high bail."

Underwood noted that many of Mustaphalli’s elderly clients are residents of Rochdale Village, a Mitchell-Lama affordable housing complex. They had no idea that Mustaphalli transferred their retirement assets to his high-risk hedge fund, Underwood said.

Of the $5 million that the new clients brought in, Mustaphalli allegedly lost $4 million within four months.

Some of these investors lost tens of thousands, while others lost hundreds of thousands, according to the indictment.

Mustaphalli meanwhile diverted $100,000 from the remaining investments to his shell companies, leaving investors with just 30 percent of their original funds, Underwood said.

Underwood emphasized that it is a prerequisite for hedge fund investors to have a net worth of at least $1 million in order to meet the definition of an “accredited investor.”

In some cases, Underwood said Mustaphalli forged a client’s initials to certify that they had more than $1 million. Other times, he allegedly only showed the client a signature page.

“He also allegedly used fake email addresses for investors who in some cases didn’t own or know how to operate a computer,” Underwood said. “These people trusted him and he took advantage of that trust.”

Underwood noted that compensation will be tougher for Mustaphalli’s victims if the state seeks a penalty in the civil case.

The civil case was brought by former Attorney General Eric Schneiderman, who resigned his office earlier this month after multiple former romantic partners accused him of physical abuse.

Underwood, who had been state solicitor general since 2007, will serve out the remainder of Schneiderman’s term after state lawmakers endorsed her succession last week, making her the first woman in the state to hold the office.

As she told the Legislature in her interview, Underwood reiterated Wednesday for reporters that has no plans to run for the office in the election this fall.

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