New York Attorney General Eric T. Schneiderman announced charges Wednesday against an investment advisor in the state and several entities he controlled with defrauding elderly clients out of millions of dollars.

The lawsuit against Dean Mustaphalli — who was suspended from the securities industry — was filed in New York’s Supreme Court. The suit alleges that he engaged in a six-year scheme to defraud clients that were elderly and at or near retirement by investing their money in his hedge fund — without their knowledge and against their interest — that engaged in highly speculative and risky trading.

“It is shameful to rip off elderly New Yorkers who are trying to plan for retirement,” Schneiderman said in a statement. “As we allege, Dean Mustaphalli squandered and looted $10 million from hardworking individuals. New Yorkers deserve to know that their investments are safe — and financial professionals who won’t play by the rules will face consequences.”

The entities Mustaphalli controlled were Mustaphalli Capital Partners Fund L.P.; Mustaphalli Advisory Group LLC; Mustaphalli Capital Management LLC; Mustaphalli Group LLC; LSA Quant Research LLC, L & S, LLC; and Camelot Cricket Club Inc.

The lawsuit alleges that since 2011, Mustaphalli caused 58 New York investors to invest a total of more than $11 million in his hedge fund, $10 million of which was lost by engaging in a highly risky trading strategy that was not consistent with his clients’ investment profiles and objectives.

Mustaphalli’s scheme “targeted elderly New Yorkers who had been his clients for many years, who had already hired him as their investment advisor, and who had already given him control of trading in their investment accounts,” the complaint states.

As their investment advisor, Mustaphalli “knew that these investors had relatively conservative investment needs. In fact, Mustaphalli had approximately 10 years of experience providing financial services to these clients using conventional investment products like annuities, mutual funds and exchange-traded funds,” the complaint states.

Schneiderman also alleges that Mustaphalli took an additional $100,000 from his hedge fund to pay for his own personal expenses.

While the investigation of Mustaphalli was ongoing, Schneiderman said that he sought and obtained two orders from New York Supreme Court freezing accounts of Mustaphalli’s entities and prohibiting them and Mustaphalli from offering investment advice in New York.

Beginning in 2010, having been repeatedly put under heightened supervision by his prior employers due to client complaints, and later having been suspended from the securities industry, Mustaphalli moved his clients’ assets to a platform that would conceal his risky trading activity.

“Without explanation, and simply saying that the fund would be ‘better’ for clients, Mustaphalli diverted his clients’ relatively safe investment portfolios to a hedge fund” run solely by him.

The complaint also says that he “falsified documents to show that his clients were ‘accredited investors.’”

Mustaphalli then proceeded to lose the vast majority of his clients’ money on speculative options trading and other highly levered strategies.

“When the hedge fund assets had dwindled such that they did not generate substantial management fees, Mustaphalli transferred $100,000 out of the fund, through shell companies, to pay for his own personal expenses,” according to the complaint.

Mustaphalli allegedly told investors that the losses were due to “oil, bad markets and the election,” and promised one investor “if Hillary wins, you’ll get your money back.” He told yet another investor that Brexit was to blame for the fund’s losses.

— Check out FINRA to Release More Guidance on Bad Brokers on ThinkAdvisor.