‘Churning’ Scammer Fleeced 9/11 Widow, Disabled Daughter; Victim’s Husband Was Naval Officer Killed In Pentagon Attack, Authorities Say

A Massachusetts man entrusted with $3.7 million from a widow whose husband was a Naval officer killed in the 9/11 terrorist attack on the Pentagon has been charged by state and federal authorities in a “churning” case.

James J. Konaxis, 52, of Beverly, pocketed more than half a million dollars in commissions by making a “multitude” of unauthorized trades in the widow’s accounts, including custodial accounts she opened for her disabled teenage daughter and two other children who were minors, the SEC charged.

An “annual turnover rate” of six is considered “excessive” if the trades do not reflect a customer’s investment aims, the SEC said. In April 2010, after Konaxis had been managing the family’s 9/11 compensation for two years, the turnover rate in one of the accounts was 16. The rate in another was nine, according to court filings.

Massachusetts Secretary of State William Galvin now has banned Konaxis from the state’s securities industry. Investigators discovered that accounts opened by the widow accounted for 75 percent of the commissions Konaxis earned over a two-year period and that the value of the accounts had plunged by more than $2 million.

The nondiscretionary accounts were opened with funds received from the September 11th Victim Compensation Fund, the SEC said. Konaxis traded in the accounts without the authority of the widow, who is described in court documents only as “S.T.”

“A non-discretionary account is an account that does not empower a broker to buy and sell securities without the client’s prior knowledge and consent,” the SEC said. “Churning occurs when a registered representative controls the trading in a customer’s account and excessively trades the Customer’s funds in light of the Customer’s investment objectives while knowingly or recklessly disregarding the Customer’s interests.”

When Konaxis’s employer approached him last year about the commissions coming from the widow’s account, he began to trade “heavily” in the account of her disabled daughter, the SEC said.

Konaxis, who allegedly plowed some of the woman’s money into penny stocks, tried to make her feel better by telling her that she was hardly alone in experiencing a reversal of fortune in the market downturn and that her losses were “were not as great as those suffered by other investors,” the SEC charged.

But when investigators reverse-engineered the transactions, they discovered that the lion’s share of Konaxis’s commissions had come from the widow’s accounts and that he had pocketed about $550,000.

Meanwhile, the value of the widow’s accounts had plunged from $3.7 million to $1.6 million, according to court filings.

Konaxis “knowingly disregarded” the interests of the family when he churned the widow’s accounts “for his own interests because of the significant commissions he earned,” the SEC charged.