A Long Island, NY-based broker agreed to pay $350K to settle SEC charges that he defrauded a congregation of mostly elderly nuns in the Bronx.  The $100K civil penalty and $250K disgorgement will be paid in their entirety to the Sisters of Charity.  Specifically, broker Paul Chironis, who was formerly affiliated with Capital Growth Financial, a Boca Raton,FL-based broker-dealer, is alleged to have churned 2 accounts owned by the Sisters of Charity.  One account is used to care for nuns in assisted-living facilities;  a 2nd account is used to support the nuns' charitable endeavors.  Chironis is no longer in the industry.

    Details of Alleged Violations.   Chironis allegedly defrauded the nuns from January 2007 to January 2008 by churning accounts - each had a low-risk tolerance and primarily held MBS's (mortgage-backed securities) issued by Ginnie Mae, Fannie Mae, and Freddie Mac, as well as certain closed-end bond funds.  The SEC further found that Chironis charged the nuns' accounts excessive and undisclosed markups and markdowns in riskless principal transactions. 

All told, during the 13-month period, the Sisters of Charity's accounts paid nearly 11% of their value to Chironis in transaction fees.  The average markup on 46 bond purchases was of 3.68%, including mortgage-backed securities, and 3.03% on 33 closed-end bond fund purchases.  The congregation's accounts were charged an average markdown of 1.92% on 67 bond sales, and 1.86% on 15 closed-end bond fund sales.

SEC staffers who conducted the investigation:  Gerald Gross, James McGovern, Howard Fischer, and Christopher Dunnigan of the NY 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 OCIE.   [PR Release 11-2, 1/6/11]