FINRA May Expel Ex-Broker For $6M Hedge Fund

Dean Mustaphalli, an ex-Sterne Agee Financial Services Inc. broker, could be barred from the industry over allegations that he ran a $6 million hedge fund on the side. According to the Financial Industry Regulatory Authority Inc., Mustaphalli founded and got commissions from Mustaphalli Capital Partners in 2011 but did not tell his brokerage-firm.

Already, Mustaphalli has been named in at least two arbitration claims. He ran the hedge fund through Mustaphalli Advisory Group. It is not known time whether any of the 25 investors he solicited were Sterne Agee clients. Over a four-month period, he was paid about $41,800 in management fees.

Mustaphalli was fired from Sterne Agee in 2011. After he was let go, he purportedly kept soliciting clients for his hedge fund through the investment adviser.

FINRA rule 3040 lets brokers run hedge funds but this must be completely disclosed, approved by, and overseen by the member firm. If a FINRA hearing panel discovers that Mustaphalli withheld information he could also be subject to action for not making sure the hedge fund was properly disclosed.

The self-regulatory organization says that Mustaphalli failed to provide the documents it asked for that would let the regulator know the identities of the hedge fund clients, as well as bank account statements documenting the funds moving in and out of the hedge fund.

Mustaphalli is also under investigation by FINRA for allegedly making variable annuities transactions that were not suitable when he worked at Citigroup Global Markets Inc. (C) He denies those claims.

If you suspect your losses are because of hedge fund fraud, contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Former Sterne Agee broker accused of running $6M hedge fund side business, July 14, 2014

Ex-Sterne Agee broker faces expulsion over $6 million hedge fund, Investment News, July 11, 2014

Conduct Rules, FINRA

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