Two brothers who allegedly operated an unlicensed investment advisory business out of their parents’ Encino home were arrested Friday on federal wire fraud charges accusing them of using false account statements to hide multimillion-dollar losses of their investors’ funds.
Motty Mizrahi, 46, of Encino, and Sassi Mizrahi, 53, of Sherman Oaks, made their initial appearances in Los Angeles federal court Friday afternoon after being taken into custody.
The criminal complaint alleges the younger sibling falsely portrayed himself as a licensed broker, certified public accountant and experienced trader who employed sophisticated financial option- and insurance-hedging strategies through the brothers’ business, MBIG Company.
From November 2012 until this month, Motty Mizrahi raised millions of dollars from investors, promising them guaranteed returns between 2 percent and 3 percent per month, and assuring them that their funds could be withdrawn after an initial holding period on an on-demand basis, federal prosecutors allege.
Motty Mizrahi allegedly submitted phony monthly account statements that purported to show consistent monthly gains and also falsely showed that MBIG’s account balances were between $6 million and $9 million. In reality, he lost the investors’ money — losses he and his older brother denied when confronted by victims who unsuccessfully demanded their money back, the affidavit alleges.
Prosecutors also allege that the younger sibling distributed to investors a financial prospectus that contained false and fraudulent representations concerning MBIG’s past investment performance.
The Mizrahi brothers also misled investors about their company’s E-Trade brokerage account, which was supposed to be used for investors’ money but in reality did not exist, federal prosecutors allege.
Instead, Motty Mizrahi routed all victim-investor funds into his own personal trading account, the affidavit alleges. After E-Trade closed his personal accounts, Motty and his brother allegedly continued to mislead investors by assuring them that MBIG had an E-Trade account containing adequate balances to cover the victim-investors’ initial investments, according to the U.S. Attorney’s Office.
If convicted on the wire fraud charges, the defendants would each face up to 20 years in federal prison.
In a related action, the U.S. Securities and Exchange Commission filed a civil fraud action against Motty Mizrahi and MBIG Company. and obtained emergency relief including a temporary restraining order and an asset freeze order against the defendants, according to prosecutors.