Erez Law is investigating NYLIFE Securities LLC and its former broker Felix Chu (CRD# 2427593) who allegedly solicited his client to invest in an unapproved illicit promissory note scheme.
Erez Law Files Claim on Behalf of Married Couple
In September 2021, Erez Law filed a FINRA arbitration on behalf of a married couple of advanced age and rapidly approaching retirement against Chu. The married couple needed to invest in higher yielding and superior investments to achieve their retirement goals. It is alleged that Chu recommended the clients invest in the illicit promissory notes by representing to them that given their advanced age; the series of promissory notes were purported to pay interest as high as 20%. Chu also allegedly represented that the promissory notes were secure and would generate the returns they needed to provide them with a comfortable retirement.
On several occasions, Chu recommended an investment strategy involving the Erez Law clients borrowing funds against their New York Life Insurance Co. policies to invest in the promissory notes. Chu also recommended the clients withdraw funds from her variable annuity in her IRA and invest the funds in promissory notes as well as refinance their home, take a new mortgage, and invest the proceeds in yet another promissory note.
Regrettably, Chu ceased making any required interest payments to the clients and the clients have losses of capital in excess of approximately $800,000. Not only have the clients lost their retirement savings, but they now pay interest in the loans they took to invest in the promissory notes.
Erez Law Files Claim on Behalf of Widow
In February 2021, Erez Law filed a FINRA arbitration on behalf of a widow against Chu who allegedly solicited his client to invest in an unapproved illicit promissory note scheme, purporting to pay 10% for a term of 90 days. After the passing of her husband, the Erez Law client entrusted the life insurance proceeds and retirement funds to Chu. The widow was an unsophisticated investor.
According to the claim, Chu represented to the client that by investing all of her available funds in promissory notes, she would earn approximately $10,000-$12,000 per month tax free for the next 10-15 years. Chu also recommended the client invest additional proceeds in a whole life insurance policy, which had a significant monthly premium of nearly $4,000. Chu represented to the client that the promissory note he recommended was superior to any other investment available to her and would generate more than sufficient consistent monthly income needed to cover the significant monthly premiums associated with the insurance policy he recommended. Following these initial investments, Chu also solicited the client to withdraw funds from her husband’s 401(k) she inherited and invest the proceeds in the promissory notes, representing to her that the return that she will earn on the promissory notes will cover the early redemption penalties.
Chu’s illicit investment strategy of recommending the client invest in Ponzi scheme promissory notes to generate income to invest in an excessively high amount of life insurance in order to generate excessive commissions for himself was grossly unsuitable. Chu was undoubtedly motivated to sell the client a commission rich insurance policy to generate maximum commissions for himself and with no regard to the fact not only would the client lose her funds invested in the promissory note scheme he was running with his son but would also be forced to surrender the policy.
The client did not receive two payments on her promissory notes, and by October 2018, the client was not receiving the monthly payments owed to her pursuant to the promissory note and could not pay the monthly premiums on her insurance policy. As a result, the client was forced to reduce the face amount of the policy which was subsequently reduced by 50%. By March 2019, the client was no longer receiving payments on the promissory note and was forced to surrender the policy. The client lost all the death benefits and retirement savings she received as her husband’s beneficiary as well as the funds invested in the whole life policy due to Chu’s egregious conduct.
Chu recommended the promissory note investments without obtaining NYLife’s required approval. By recommending that the client invest in unapproved investments, NYLife did not conduct any required due diligence on the investments, which are therefore unsuitable.
The fraudulent promissory notes sold to the client were part of a larger fraud. Regrettably, this was not an isolated case.
Erez Law Files Claim on Behalf of a Group of Investors
In August 2020, Erez Law filed a FINRA arbitration against NYLIFE Securities LLC and Felix Chu and his son Derek Chu (CRD# 4683951). It is alleged that since at least 2013, Chu and Derek Chu raised millions of dollars from a number of investors, including the Erez Law clients.
According to the claim, Chu solicited the clients to invest in an unapproved illicit promissory note scheme operated by Felix Chu and his son Derek Chu. From at least 2013 to 2018, Felix Chu and Derek Chu perpetrated a fraudulent promissory note scheme that has all the signature characteristics of a Ponzi scheme. The claim alleges that Felix Chu represented to the clients that Derek Chu had a successful sports ticket resale business. Felix Chu represented that Derek Chu had purchased tickets for luxury suites in Oracle Arena in Oakland, California (home of the NBA’s Golden State Warriors basketball team) and in the Staples Center in Los Angeles, California (home of the NBA’s Los Angeles Lakers and Los Angeles Clippers basketball teams) and that he resold the luxury suite tickets for significant profits.
It is alleged that Felix Chu repeatedly boasted how successful his son Derek Chu’s business was. Chu represented to the clients and others that an investment in Derek Chu’s business would generate annual returns of 15% or more and was a safe investment In or about October 2016, Chu solicited the clients to invest in the promissory note scheme. The clients invested in a series of promissory notes issued by Derek Chu. The promissory notes paid 15% annually and had a term of one year. Based on Chu’s introduction, solicitation, recommendation and/or representations, the clients invested in promissory notes issued by Derek Chu. Contrary to Chu and Derek Chu’s representations, the promissory note investments sold to the clients did not pay the significant returns promised to the clients.
In September 2016, the clients invested in a promissory note issued by DChu Holdings, LLC, a company owned by Derek Chu. It is alleged that the fraudulent promissory notes sold to clients were part of a larger fraud designed to enrich the Chu family.
The claim alleges that Felix Chu actively participated in the ongoing fraudulent promissory note scheme, which was operated collectively by Felix Chu and his son, Derek Chu. In fact, many of the promissory notes sold to other investors were issued by both Felix Chu and Dereck Chu.
It is alleged that only a portion of the funds raised was actually invested in the manner represented to the clients. A significant portion of the funds raised from investors, including the clients, was used to pay back interest and principal payments to earlier investors; and fund the Chu family’s lavish lifestyle which included luxurious vacations, travel on private jets, tickets to premium sporting events and concerts, high-end real estate, and an extensive collection of luxury watches and exotic cars.
In short, the promissory note scheme possesses all the traditional indicia of a Ponzi scheme. Derek Chu was fired by NYLIFE for engaging in an illicit selling away scheme and barred from the securities industry for life by FINRA
According to his Brokercheck profile, in or about early 2015, the SEC notified NYLIFE that it was investigating Derek Chu’s outside business activities and private securities transactions. Presumably, the SEC investigation related Derek Chu’s illicit sale of promissory notes similar to those sold to the clients.
In March 2015, NYLIFE fired Derek Chu for engaging in the illicit sale of unapproved outside investments, a practice commonly referred to as “selling away.”
Contrary to Felix Chu and Derek Chu’s representations, it is alleged that the promissory note investments sold to the clients did not pay the significant returns promised to the clients.
The claim alleges that since at least 2013, Chu has been engaged in a fraudulent promissory note scheme. Beginning in or about 2016, Chu engaged in illicit conduct including “selling away” in connection with the sale of fraudulent promissory notes to the clients, for which NYLIFE is legally liable. Chu’s wrongful conduct for which NYLIFE is responsible caused clients significant damages.
It is alleged that by recommending that clients invest in unapproved investments, NYLIFE did not conduct any required due diligence on the investments, which are therefore unsuitable. The promissory notes were fraudulent investments and were unsuitable for the clients or any investors. Chu also engaged in an undisclosed outside business activity, as Chu failed to disclose his involvement in Derek Chu’s scheme. Additionally, it is alleged that Chu engaged in misleading communications regarding the promissory notes.
Additionally, it is alleged that Chu failed to adequately disclose the enormous risks attendant to the fraudulent investment scheme. NYLIFE has a legal obligation to supervise Chu and to ensure that Chu complied with all applicable securities laws and SRO rules. It is alleged that NYLIFE failed to adequately supervise Chu. By failing to detect and terminate Chu’s illicit conduct, the clients invested in fraudulent promissory notes and lost their entire investment.
NYLIFE admitted in Derek Chu’s CRD that as early as March 2015, NYLIFE had actual knowledge that Derek Chu was under investigation by the SEC for his “outside business activities” and “private securities transactions.” Moreover, NYLIFE also admitted that in March 2015, NYLIFE conducted its own review of Derek Chu before firing him for engaging in an illicit selling away scheme involving the unapproved sale of promissory notes.
Regrettably, despite having actual knowledge that Derek Chu was engaged in an illicit selling away scheme, it is alleged that NYLIFE failed to conduct an adequate investigation into Derek Chu and his business partner, Felix Chu. Had NYLIFE conducted an adequate investigation, it would have discovered that Derek Chu’s partner and co-conspirator, Chu, was actively participating in the same illicit promissory note scheme for which NYLIFE fired Derek Chu.
Instead, NYLIFE’s supervisory failures allowed Chu to continue working for NYLIFE while operating the fraudulent promissory note scheme for another four years, inflicting damage on numerous other innocent investors including the clients. The damages suffered by the clients was preventable. Had NYLIFE been adequately supervising Chu or conducted an adequate investigation upon learning of Derek Chu’s illicit promissory note scheme in 2015, the clients’ losses could have been avoided.
Felix Chu was a registered representative of NYLIFE Securities LLC in Pleasant Hill, California from 1994 to March 2019. In June 2015, Derek Chu was barred from the securities industry for life by FINRA after he refused to cooperate with FINRA investigators in connection with an ongoing FINRA investigation into his illicit conduct.
Derek Chu was registered with NYLIFE as a securities broker from December 2004 to March 2015, when he was fired by NYLIFE for engaging in illicit selling away. In 2016, Derek Chu was barred from the securities industry for life by FINRA. In December 2019, Felix Chu was suspended from working in the securities industry indefinitely by FINRA. In March 2020, Felix Chu was barred from the securities industry for life.
Felix Chu has been the subject of two customer complaints in 2019, according to his CRD report:
- October 2019. “Plaintiff alleges that beginning in March 2016 until September 2018, she and her late husband were misled into purchasing promissory notes for a total of $305,000.00. Plaintiff further alleges that they were misled into remitting a check for $75,000 to purchase what they believed to be additional insurance. Plaintiffs are seeking compensatory damages in excess of $380,000, lost income, interest, punitive damages and attorneys’ fees.” The customer sought $380,000 in damages and the case was settled for $125,000. The complaint is regarding promissory notes and took place while Chu was registered with NYLIFE Securities LLC.
- August 2019. “Plaintiffs allege that beginning in 2015, they were misled into purchasing promissory notes. Plaintiffs are seeking the return of principal, interest, punitive damages and attorneys’ fees.” The customer sought $836,950 in damages and the case was settled for $250,000. The complaint is regarding promissory notes and took place while Chu was registered with NYLIFE Securities LLC.
Dereck Chu has been the subject of one customer complaint, according to his CRD report:
August 2019. “Plaintiffs allege that beginning in 2015, they were misled into purchasing promissory notes. Plaintiffs are seeking the return of principal, interest, punitive damages and attorneys’ fees.” The customer is seeking $836,950 in damages.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.