The Securities and Exchange Commission (SEC) has charged a broker with defrauding a 9/11 widow and her disabled daughter.
The commission said James J. Konaxis of Beverly, Mass., engaged in excessive trading, a practice called churning, to earn more than $550,000 in fraudulent commissions while as a registered representative and investment advisor representative with Sentinel Securities. The SEC said the customer was the widow of a Naval officer who died during the terrorist attacks on the Pentagon on September, 11 2001, and the money she invested was obtained from the September 11th Victim Compensation Fund.
The SEC says Konaxis churned three of the victim's five funds, including a custodial account for her disabled teenage daughter, between April 2008 and April 2010. Over that period, the victim's assets shrank from $3.7 million to $1.6 million, a significant amount of which was attributable to commissions due to excessive trading, the SEC says. The account represented 75% of Konaxis' total commissions for the period.
According to the complaint filed by the SEC, the victim had designated her five Sentinel brokerage accounts as non-discretionary in her account opening forms, which does not empower a broker to buy and sell securities without the client's prior knowledge and consent.
Among the unauthorized trades made through the customer's accounts were trades placed in a penny stock and in exchange-traded funds.
The SEC says Konaxis has consented to a partial judgment enjoining him from future violations of the antifraud provisions of the Securities Act and Exchange Act, and barring him from participating in any offering of penny stock. The SEC says it will also seek disgorgement of the fraudulently obtained commissions plus pre-judgment interest, and the fining of a monetary penalty against Konaxis. In a separate administrative proceeding, the SEC says Konaxis has consented to be barred from association with any broker, dealer, investment advisor, municipal securities dealer or transfer agent.
Konaxis is also facing separate charges against him filed from the Massachusetts Securities Division.