Osaic is seeking to block arbitration claims filed by investors, who allege that the independent broker/dealer failed to oversee a registered representative who was charged by the SEC and a New York District Attorney with running a Ponzi scheme.
According to a suit filed by Osaic in New York federal court last week, Edward and Lubov Ilyaich’s claims against the broker/dealer don’t pass muster, as they allegedly were never clients of the firm itself.
Osaic argued that the siblings’ dealings with former rep Marat Likhtenstein (and specifically their “personal loans” to Likhtenstein) fell outside the standard client/rep relationship.
The Securities and Exchange Commission and Brooklyn District Attorney both filed charges earlier this year against Likhtenstein for allegedly running a multi-million dollar Ponzi scheme targeting Brooklyn’s Russian-Jewish community.
According to SEC records, Likhtenstein first registered with Signator Investors in 2004; in 2018, he joined Royal Alliance, part of Advisor Group’s suite of b/ds (that Osaic later subsumed).
In the charges filed in September, the SEC claimed that between April 2017 and June 2024, Likhtenstein solicited clients to lend him money by purchasing promissory notes; he allegedly raised more than $4.1 million from over 15 clients.
These presumably included the Ilyaich siblings, and according to the SEC, also included an unnamed client that invested money he’d received from his parents who survived the Holocaust and received restitution funds from Germany’s government.
As collateral for the notes, Likhtenstein repeatedly listed his Brooklyn home (purportedly valued at $1.4 million) while knowing (but not disclosing) that the house was heavily mortgaged and had been used as collateral in many notes, “rendering it essentially worthless as collateral.”
Likhtenstein told clients they’d earn “extraordinary” interest rates through their investments, but he allegedly used approximately $940,000 in funds for Ponzi-like payments and spent around $3.2 million on personal expenses, including credit card payments, small business loans, car and insurance payments, and cash withdrawals.
According to the charges, in June 2024, Likhtenstein told an unnamed client he couldn’t pay their principal or remaining interest and admitted he’d run a “pyramid” scheme for over 10 years, though “not nearly on Madoff’s level,” referring to convicted felon Bernie Madoff. He also said he’d still be running the scheme if someone hadn’t “ratted” him out to Osaic.
According to the Ilyaichs’ arbitration claim, Edward was a 49-year-old information technology business owner who had rheumatoid arthritis, while Lubov was a 54-year-old pharmacist. Both were born in Uzbekistan and live in Brooklyn.
In the arbitration claim, the duo argued that they made $400,000 in investments on Likhtenstein’s urging, who allegedly falsely claimed that the investments were low-risk. The siblings claimed that Osaic’s supervision of “off-site” brokers, such as Likhtenstein, was “inadequate,” and asserted that a fiduciary relationship existed between the siblings and Osaic.
However, Osaic claimed in its suit filed Friday that no arbitrable claim exists, as the siblings “are not and never have been customers of Osaic or its registered representatives.”
“The transactions at issue … seem to arise from personal loans that (the siblings) made to Mr. Likhtenstein, not related in any way to the business of Osaic or Mr. Likhtenstein’s role as a financial advisor for Osaic,” the complaint read. “Osaic had no knowledge of or involvement with the transactions at issue in the FINRA arbitration.”
According to SEC and FINRA records, Osaic fired Likhtenstein in June 2024 for “failure to disclose personal loan transactions with a client,” and was later barred from the industry by FINRA for refusing to submit documents and on-the-record testimony about the claims.
Osaic declined to comment on the ongoing litigation.
The suit against the brother and sister duo is the second time Osaic has filed legal challenges to avoid responsibility in arbitration for Likhtenstein’s dealings. In a complaint originally reported by Citywire, Osaic sued Olga Cherney on similar grounds after she claimed in arbitration that Likhtenstein stole nearly $300,000.
In March, Brooklyn District Attorney Eric Gonzalez announced Likhtenstein had been charged with eight counts of second-degree grand larceny, two counts of third-degree grand larceny and one count of first-degree scheme to defraud, among other charges. Gonzalez claimed that Likhtenstein stole close to $1.24 million from 10 people, issuing promissory notes while promising high rates of return.
