According to a press release, the SEC, which instituted administrative proceedings against Paul George Chironis in April 2010, found that he churned two accounts owned by the Sisters of Charity — one account with money for care of nuns in assisted-living facilities and a second account to support the nuns’ charitable endeavors. Chironis was formerly affiliated with Capital Growth Financial, Inc., a broker-dealer firm that was based in Boca Raton, Florida, and is no longer in business.
The SEC notes that churning is a fraudulent practice that occurs when a broker engages in excessive trading in order to generate commissions and other revenue without regard to the customer’s investment objectives.
“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.”
According 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% of their value to Chironis in transaction fees. The nuns’ accounts were charged an average markup of 3.68% on 46 bond purchases including mortgage-backed securities, and 3.03% on 33 closed-end bond fund purchases. The congregation’s accounts also were being charged an average markdown of 1.92% on 67 bond sales and 1.86% on 15 closed-end bond fund sales.
Chironis agreed to pay $350,000 ($100,000 penalty, $250,000 in disgorgement) to the Sisters of Charity in the SEC settlement, and 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.
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