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Tag: churning

  • ‘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.

  • SEC: Broker Ripped Off Elderly Nuns In New York; Paul George Chironis Targeted Sisters Of Charity In Churning Scam, Agency Says

    A Long Island, N.Y.-based broker ripped off  “a congregation of mostly elderly nuns in the Bronx” in a churning scheme in which he repeatedly executed trades that eroded the value of two accounts held by the Sisters of Charity to line his own pockets, the SEC said.

    Paul George Chironis, 58, of Melville, N.Y.,  has settled the SEC’s administrative action by agreeing to pay the Sisters of Charity $350,000. He further was barred from associating with with any broker, dealer, investment adviser, municipal securities dealer, transfer agent, municipal adviser or nationally recognized statistical ratings organization.

    “Chironis took advantage of the trust placed in him by the Sisters of Charity and convinced the nuns to engage in a high turnover trading strategy unfit for their investment needs,” said George S. Canellos, director of the SEC’s New York Regional Office. “Chironis’s irresponsible actions virtually guaranteed the convent’s accounts would lose money due to the undisclosed and excessive costs being incurred while Chironis focused on generating substantial commissions for himself.”

    Meanwhile, Chironis was barred from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter.

    The Sisters of Charity used the investment accounts to pay “for the care of members of the Congregation living in assisted living facilities” and to support the Congregation’s charitable endeavors, the SEC said.

    Chironis, who neither admitted nor denied the allegations as part of a settlement agreement, had a history of churning, the SEC said.

    “Chironis has worked in the securities industry since 1981 and maintained Series 7 and 63 licenses since 1983,” the SEC said in administrative filings. “Prior to his association with Capital Growth [Financial Inc.,] Chironis received seven customer complaints filed with the NASD/FINRA, including complaints for churning and unsuitability.

    “As a result of customer complaints, in January 2006, the Michigan Securities Division required that Chironis be placed on heightened supervision, and in March 2006 the Vermont Securities Division prohibited Chironis from soliciting investors in Vermont. Chironis was associated with Capital Growth from November 2005 until February 2008, when Capital Growth ceased business operations. Since March 2009, Chironis has been associated with another registered broker-dealer located in New York, New York.”

    Capital Growth, which had offices in New York and Boca Raton, Fla., now is defunct, the SEC said.

    Chironis’ scheme targeting the nuns occurred between Jan. 1, 2007, and Jan. 31, 2008, the SEC said.

    Here is one example of how Chironis ripped off the nuns, according to the SEC administrative filing (emphasis added):

    “Chironis frequently replaced one bond with a bond or bonds of similar duration and yield. For example, on July 24, 2007, Chironis sold a Ginnie Mae bond with a 6% coupon rate, a maturity date of 2033 and a principal amount of $258,504.43. The very next day, Chironis purchased a Ginnie Mae bond with the same 6% coupon rate, the same 2033 maturity date and a principal amount of $201,636.05, along with a second Ginnie Mae bond with a 6% coupon rate, a 2032 maturity date and principal amount of $199,956.51. Capital Growth, through Chironis, charged the Accounts approximately $18,352 in transaction fees – in the form of markups and markdowns – on these three transactions. On September 26, 2007, Chironis sold one of the two bonds he purchased two months earlier, and on October 24, 2007, he sold the second.”

    During a 13-month period, the SEC said, the Sisters of Charity paid nearly 11 percent of the value of the nuns’ accounts to Chironis in the form of transaction fees.