A broker on Thursday settled charges that he had churned two accounts owned by a group of elderly nuns.
In a deal with the Securities and Exchange Commission, Paul George Chironis, a Long Island, N.Y.-based broker, agreed to pay a $100,000 penalty and $250,000 in disgorgement. The money will be placed in a fair fund and distributed to the Sisters of Charity, a congregation of mostly elderly nuns. The rep also has been barred from associating with any broker-dealer or investment adviser.
The SEC's case dates back to January 2007, when Mr. Chironis was a registered rep at now-defunct Capital Growth Financial Inc. While at that Boca Raton, Fla.-based firm, the broker oversaw two accounts for the nuns. Those accounts were intended to cover the assisted-living-facility expenses for members of the congregation and to cover the nuns' charitable goals.
Both of the accounts held mortgage-backed securities from
Fannie Mae,
Freddie Mac and Ginnie Mae, plus closed-end-bond funds and corporate bonds.
According to the SEC, Mr. Chironis did not have discretionary authority over the accounts yet recommended transactions to the charity's finance chief.
The commission claims that over the course of about a year, Mr. Chironis bought and then quickly sold the mortgage bonds. Typically, mortgage-backed bonds are used for long-term investments.
From January 2007 through January 2008, Mr. Chironis allegedly bought 46 bonds and sold 38 within the same period, the SEC claims. On average, he held the bonds for a mere 4.3 months, according to regulator. He also allegedly made 35 purchases of closed-end-bond funds, holding them for 4.8 months on average, according to a cease-and-desist order issued by the commission.
The frequent trading apparently took a heavy toll on the nuns' accounts. The SEC said Mr. Chironis racked up $959,027 in markup and markdown costs — equal to about 10% of the value of both accounts. What's more, the high turnover resulted in losses. Mr. Chironis bought about $20 million in securities and sold about $18 million's worth during the 13-month period, hitting the accounts with a realized loss of $639,000, according to the SEC's order.
Prior to working at Capital Growth, Mr. Chironis received seven customer complaints filed with NASD/ the
Financial Industry Regulatory Authority Inc., including complaints for churning and unsuitability. In January 2006, the Michigan Securities Division required that the broker be placed on heightened supervision. A few months later, the Vermont Securities Division prohibited Mr. Chironis from soliciting investors in that state.
In agreeing to the order, Mr. Chironis neither admitted nor denied the charges. The rep, who did not immediately return calls seeking comment, most recently was employed as a broker at HFP Capital Markets LLC in New York.
It's unclear if he has left that position in the wake of the settlement.
In fact, Mr. Chironis disputed the SEC's charges in an earlier posting on his Finra BrokerCheck record.
“I have reviewed all the allegations of the SEC complaint and believe them to be meritless,” Mr. Chironis wrote. “The transactions undertaken with the client, the subject of the complaint, were approved by the client's in-house financial adviser and met all tests for propriety and suitability.”
