This must be a new low for con men everywhere.
Long Island, New York-based broker Paul George Chironis has agreed to pay $350,000 to the Sisters of Charity, group of mostly elderly nuns in the Bronx, after the SEC found he had scammed the nuns by "churning" their accounts.
Instead of responsibly managing the nuns' brokerage accounts -- one devoted to financing charity efforts, one to care for elderly nuns in assisted-living facilities -- Chironis focussed on generating substantial commissions for himself.
"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," wrote the SEC's George S. Canellos. Chironis did not admit or deny the allegations; he is now barred from being a broker again.
"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 in a statement. "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."
Here's more from the SEC:
Acording to the SEC's order, Chironis defrauded the nuns from January 2007 to January 2008 by churning the two accounts with low-risk tolerance that held primarily mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, as well as certain closed-end bond funds. The order further found that Chironis charged the nuns' accounts excessive and undisclosed markups and markdowns in riskless principal transactions.
The SEC's order specifically found that during a 13-month period, the Sisters of Charity's accounts paid approximately 10.8 percent of their value to Chironis in transaction fees. The nuns' accounts were charged an average markup of 3.68 percent on 46 bond purchases including mortgage-backed securities, and 3.03 percent on 33 closed-end bond fund purchases. The congregation's accounts also were being charged an average markdown of 1.92 percent on 67 bond sales and 1.86 percent on 15 closed-end bond fund sales.
The SEC's order found that Chironis violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Without admitting or denying any of the allegations in the civil injunctive action against him, Chironis agreed to an order barring him from association with any broker, dealer, investment adviser, municipal securities dealer, transfer agent, municipal advisor, or nationally recognized statistical ratings organization. The order also prohibits him 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.
Additionally, Chironis agreed to pay a $100,000 penalty and $250,000 in disgorgement that will be placed in a Fair Fund and distributed to the Sisters of Charity.
The SEC's case was investigated by Gerald Gross, James McGovern, Howard Fischer, and Christopher Dunnigan of the New York Regional Office. The matter was referred to the Division of Enforcement by Steven Vitulano, Terrance Bohan, and Hermann Vargas of the Broker-Dealer Inspection Program within the SEC's Office of Compliance, Inspections, and Examination.