U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22294 / March 15, 2012
Securities and Exchange Commission v. James J. Konaxis, 1:11-CV-10489 (District of Massachusetts, Complaint filed March 23, 2011)
COURT ORDERS FORMER BROKER TO PAY OVER $500,000 FOR DEFRAUDING 9/11 WIDOW
The Securities and Exchange Commission announced that a federal judge in Massachusetts entered a final judgment on March 14, 2012 ordering defendant James J. Konaxis, formerly a registered representative of Beverly-based broker-dealer Sentinel Securities, Inc., to disgorge more than $483,000 in commissions earned over a two-year period by defrauding a former customer who was left widowed by the September 11, 2001 terrorist attacks. Together with prejudgment interested and a civil penalty, Konaxis has been ordered to pay a total of $514,954. In granting the Commission’s motion for monetary remedies, Judge Denise L. Casper found that Konaxis was liable in the amount of all commissions earned from three of the victim’s accounts over a two-year period because he “misled the victim into thinking her investments were safe, while churning (e.g., excessively trading) her funds in a manner contrary to her interests[.]”
According to the Commission’s complaint, Konaxis violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder by excessively trading his customer’s funds while knowingly or recklessly disregarding her interests. During a two-year period, the Commission alleges that the value of his customer’s accounts (funded by payments made to the victim and her family by the September 11th Victim Compensation Fund) decreased from approximately $3.7 million to approximately $1.6 million, much of which was due to Konaxis’s investments and the resulting commissions paid to Konaxis.
At the time the Commission’s complaint was filed, Konaxis entered into a partial settlement with the Commission, in which he consented to be enjoined from future violations of the antifraud provisions of the Securities Act and Exchange Act, and to be barred from participating in any offering of penny stock. In addition, as part of the settlement, Konaxis agreed to be barred in related administrative proceedings from any future association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent. However, the Commission also filed a motion with the Court seeking disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of a civil penalty, which Konaxis opposed.
After a hearing on March 1, 2012, Judge Denise L. Casper issued an order granting the Commission’s motion for monetary remedies, including disgorgement in the full amount of Konaxis’ commissions earned over a two-year period from the three accounts churned, totaling $483,460.23, prejudgment interest in the amount of $31,494.44, and a civil penalty of $10,000, for a total of $514,954.
The SEC acknowledges and appreciates the assistance of the Massachusetts Securities Division.
For additional information, see Litigation Release No. 21897 (Mar. 23, 2011).