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Broker faces allegations of excessive trades, losses in 9/11 widow's account

E-mail | Print | Comments () Posted by Martin Finucane March 23, 2011 06:42 PM

By Robert Gavin, Globe Staff

Massachusetts Secretary of State William F. Galvin today barred a Beverly broker from working in the securities business in Massachusetts, charging him with boosting his commissions by excessively trading on the accounts of the widow of a victim of the Sept. 11, 2001 terrorist attacks.

Brokers earn fees each time they buy or sell securities. Over the course of two years, James Konaxis, 52, of Beverly, racked up $550,000 in commissions even as the value of the widow's accounts fell by more than half, to $1.6 million from $3.7 million, Galvin charged. The accounts were funded with payments from September 11th Victim Compensation Fund created by Congress following the attacks in 2001.

Also today, the federal Securities and Exchange Commission filed a complaint against Konaxis in US District Court in Boston, charging him with violating federal securities laws. The complaint seeks repayment of his "ill-gotten gains"; monetary penalties; and his ban from trading in low-priced securities known as penny stocks.

"Abuse of the trust that investors should expect from their registered financial advisors will not be tolerated," Galvin said in a statement.

Neither Konaxis or his lawyer could be reached today.

The husband of the widow, a California woman identified only as S.T., was killed in the 2001 attack on the Pentagon, according to the SEC complaint. In April 2008, the widow opened five accounts with Konaxis, who was working for Sentinel Securities, Inc. of Reading.

Two of the accounts were in the widow's name; the other three accounts were opened for her children, including a disabled daughter, according to the complaint.

Sentinel fired Konaxis in May 2010, the complaint said. Sentinel officials could not be reached.

Even though the widow had designated the accounts as "nondiscretionary", meaning that brokers need clients' approval to buy and sell, Konaxis traded frequently in penny stocks and other investments to generate commissions, according to the SEC complaint. This process is known as "churning."

A measure of trading frequency, known as turnover rate, was well above levels considered excessive, according to the complaint. A turnover rate above 6 is considered excessive; Konaxis's rates on the widow's accounts were as high as 16, the SEC charged.

About 75 percent of the commissions earned by Konaxis came from the widow's accounts, according to the complaint. Those commissions accounted for a large share of the decline in the value of the widow's holdings, the SEC charged.

"Konaxis lulled the customer into a false sense of security by assuring her over the phone that her investments at Sentinel were safe," the complaint said, "and that while she has suffered losses in the market downturn, the losses were not as great as those suffered by other investors."