Capitol Securities Management Fined For Failing To Supervise Trading In Unit Investment Trusts

Capitol Securities Management, Inc. (CRD #14169, Glen Allen Virginia) consented to being censured by Financial Industry Regulatory Authority (“FINRA”) and paying a $100,000 fine pursuant to a Letter of Acceptance, Waiver and Consent (“AWC”) #2017052215401 that was executed on May 25, 2018. Capitol was found liable for failing to supervise its short-term unit investment trust trading practices and protect investors from its registered representatives’ execution of unsuitable trades.
The AWC stated that Capitol sold unit investment trusts (UITs), described in the AWC as investment companies that offer units in portfolio of securities in a public offering. UITs, according to FINRA, are meant to be purchased and held rather than actively traded. Generally, after 15 to 24 months, the UITs mature and terminate, where the securities held within the UITs are sold and investors are paid the proceeds. According to the AWC, short-term trading of UITS can be inappropriate and raises red flags concerning suitability because of the costs and structure of the products.
The AWC’s findings reveled that from March 15, 2011 to March 15, 2017, Capitol did not have any procedures in place to address concerns about suitability pertaining to short-term trading of UITs. In April 2013, Capitol apparently set forth a policy which required UIT switch forms to be provided so that Capitol could assess if the UITs held by customers were being sold prematurely. Yet, Capitol failed to enforce this policy. In addition, the firm did not employ any surveillance and exception reports designed to uncover instances of unsuitable short-term UIT trading.

Glen Allen Virginia of Capitol Securities Management Consented to Being Censured by FINRA

The AWC stated that short-term UIT trading had been recommended by three Capitol registered representatives from March 15, 2011 to March 15, 2017. Apparently,  those products contained twenty-four month maturities, and customers were charged as much as 3.95% to invest in the UITs. Critically, customers were advised to sell those UITs after only holding them for about 325 days on average. In some cases, FINRA reported that customers selling the UITs before maturity were advised to use those proceeds for another UIT investment with identical or similar investment objectives.

The AWC’s findings revealed that customers were excessively charged $44,740.33 in connection with unsuitable trading of UITs. FINRA found that the firm committed violations of NASD Rule 3010, and FINRA Rules 3110 and 3010 for failing to ensure its UIT trading practices were adequately supervised and for failing to prevent unsuitable trading of those products by its registered representatives.
If you have experienced losses or have been excessively charged on UIT trades recommended by registered representatives of Capitol Securities or another brokerage firm, contact Soreide Law Group at (888) 760-6552 and speak with experienced counsel about a possible recovery of your investment losses. Soreide Law Group represents clients nationwide and only charges a fee upon recovery of investment losses.