Hedge fund scam artist targets the middle class

Investment scams that hit working people or the middle class typically are pretty prosaic.

They include church scams, such as a pastor cloaking his phony investment pitch in holy talk, or what are known as affinity frauds, in which the person committing the fraud belongs to and identifies with the same ethnic or religious group he preys upon.

Regular people with small amounts of money are simply not of interest to a criminal with a sophisticated sounding investment pitch who’s looking to make a big score.

Con artists who target the wealthy or upper middle class — think of Bernie Madoff — often talk about sophisticated investment strategies, rather than Jesus, to con their victims. The more complex the strategy, the more impressed the rich mark.

Mr. Madoff played this game brilliantly, claiming he bought blue chip stocks and took options contracts on them, using something known as a “split-strike” strategy to earn his annual returns of 10%. Sounds pretty complicated. Of course, it was a $50 billion sham.

That’s why this week’s criminal indictment of a New York investment adviser for allegedly defrauding elderly clients of nearly $5 million stands out.

The adviser, Dean Mustaphalli, used a hedge fund to run his scheme, which targeted some residents of housing for working and middle-class people in Queens, rather than the Upper East Side of Manhattan, according to New York Attorney General Barbara Underwood.

A few of his victims lived in Rochdale Village, an affordable housing complex a stone’s throw from John F. Kennedy International Airport. People who live there are not the kind who belong to the country club and chat about investments; they are more likely to do their relaxing at the corner bar, and they placed their bets at the local Off Track Betting parlor before those were all closed down.

From 2012 to 2017, Mr. Mustaphalli “allegedly fraudulently solicited his former clients to invest over $12 million — and lost over $11 million of their hard-earned money,” according to a statement from the New York attorney general’s office. In addition to the sum of almost $5 million cited in the criminal indictment, a separate civil lawsuit filed last year by the attorney general’s office alleges Mr. Mustaphalli fraudulently solicited an additional $7 million from prior investors.

He allegedly targeted mostly elderly people who had been his clients for many years and trusted him. The majority were not accredited investors, and they had no idea their retirement money was invested in a hedge fund, according to the statement.

Despite his clients’ lack of wealth, Mr. Mustaphalli knew how to speak — and wager — as if he was running money for millionaires, not the middle class.

He allegedly engaged in speculative options trading, a high-risk strategy. In one trade, he allegedly bet $2.5 million on the volatility of the price of the stock of Mastercard Inc. and lost his clients more than $2 million in a single trade.

And Mr. Mustaphalli could obfuscate like a real pro. He allegedly attempted to deflect blame for the losses on “oil, bad markets and the election” and allegedly promised one investor that “if Hillary wins, you’ll get your money back,” according to the statement from the New York attorney general’s office.

Mr. Mustaphalli faces a criminal indictment of 99 counts.

Let’s hope swindlers touting fancy hedge funds stay out of places like Queens. Working people can’t afford them.