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Blotter: February 2011

The latest investment advisor and broker/dealer swindles and swindlers.

Nun the Wiser

The Securities and Exchange Commission said that a Long Island, N.Y.-based broker defrauded a congregation of elderly nuns in the Bronx by churning two accounts owned by the Sisters of Charity. Paul George Chironis, who used to be affiliated with Capital Growth Financial, agreed to settle with the Sisters of Charity for $350,000.

From January 2007 to January 2008, Chironis had churned the two accounts with low-risk tolerance that held mostly mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, as well as certain closed-end bond funds. The SEC also found that he charged the accounts excessive and undisclosed markups and markdowns in riskless principal transactions.

The nuns paid about 10.8 percent of the value of their accounts in transaction fees, with an average markup of 3.68 percent on 46 bond purchases and 3.03 percent on 33 closed-end bond fund purchases. The average markdown on the accounts was 1.92 percent on 67 bond sales and 1.86 percent on 15 closed-end bond fund sales.

While Chironis didn't admit or deny any of the allegations, he did agree to an order barring him from association with or employment as an investment advisor and other roles within the industry.

A Penny Saved Is a Penny… Dumped

In a Securities and Exchange Commission complaint, Gendarme Capital Corporation has been charged with entering into agreements with penny stock issuers in 2008 to buy the stock at 30 to 50 percent discounts to the market price. Gendarme falsely told issuers it was purchasing shares for “investment purposes only,” the SEC said, but the firm then dumped most of these shares on the public markets. The firm made more than $1.6 million from the stock scheme.

According to the agency, more than 15 million shares were sold through Gendarme's principals, CEO Ezat Rahimi of Elk Grove, Calif., and Vice President Ian Lamphere of Lawrenceville, Vt. The shares were bought under the false pretenses of a long-term investment, the complaint alleges.

Gendarme's outside attorney, Cassandra Armento of Greenwich, N.Y., is also to blame, the SEC said, as she allegedly issued more than 50 false legal opinion letters in support of the firm's activities without looking into whether Gendarme intended to resell the stock. In addition, Armento had access to information that would have shown it was likely the firm was dumping the shares into the market.

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