Erez Law Files Claim Against NYLIFE Securities LLC Broker Felix Chu and Former Broker Derek Chu
Posted on Tuesday, April 14th, 2020 at 1:57 pm
Erez Law recently filed a FINRA arbitration against NYLIFE Securities LLC and Felix Chu (CRD# 2427593) and, who was a registered representative of NYLIFE Securities LLC in Pleasant Hill, California from 1994 to March 2019.
Derek Chu is Chu’s son. Derek Chu (CRD# 4683951) 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.
The Erez Law client alleges, a group of investors, the following in the newly filed FINRA claim:
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.
Since at least 2013, Chu and Derek Chu raised millions of dollars from a number of investors, including the Erez Law clients.
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, were 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.
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.
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 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 is seeking $380,000 in damages and the case is currently pending. 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 is seeking $836,950 in damages and the case is currently pending. 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.