Capitol Securities Management, Inc.

Allegations: FAILURE TO PROPERLY ESTABLISH, MAINTAIN, AND ENFORCE WRITTEN PROCEDURES AND FAILED TO FREQUENTLY EXAMINE ALL CUSTOMER ACCOUNTS TO DETECT AND PREVENT IRREGULARITIES OR ABUSES RELATING TO THE SECURITIES ACTIVITIES OF TWO FORMER REGISTERED REPRESENTATIVES WHO ENGAGED IN FRAUDULENT BEHAVIOR WITH CLIENTS. Status: Final Sanction Detail: MONETARY PENALTIES OF $75,000.00 AND ADMINISTRATIVE COSTS OF $25,000.00, BOTH PAYABLE TO THE COMMONWEALTH OF VIRGINIA.

Allegations: SUITABILITY OF REVERSE CONVERTIBLE NOTES AND RELATED SUPERVISORY PROCEDURES; IMPLEMENTATION OF AML PROCEDURES RELATED TO THE DEPOSIT AND SALE OF LOW PRICED SECURITIES; CIP PROCEDURES RELATED TO INSTITUTIONAL ACCOUNTS; APPLICATION OF SALES CHARGE DISCOUNTS FOR CERTAIN UIT AND MUTUAL FUND PURCHASES AND RELATED SUPERVISORY PROCEDURES; COMMISSION CHARGES ON CERTAIN EQUITY TRADES AND SUPERVISORY PROCEDURES RELATED TO MONITORING THOSE CHARGES; SUPERVISORY PROCEDURES RELATED TO PRIVATE SECURITIES TRANSACTIONS; AND FAILURE TO FILE AN APPROPRIATE APPLICATION FOR A NEW BUSINESS ACTIVITY. Status: Final Sanction Detail: THE FIRM WAS CENSURED, FINED $470,000, AND ORDERED TO PAY $226,448.90 PLUS INTEREST TO CUSTOMERS. Summary: FOR PURPOSES OF SETTLING THE ABOVE-REFERENCED RULE VIOLATIONS, WHICH WERE IDENTIFIED DURING ROUTINE ANNUAL FINRA INSPECTIONS CONDUCTED BETWEEN 2008 AND 2014, CSM AGREED TO ENTER INTO THE AWC, THUS NEITHER ADMITTING NOR DENYING THE FINDINGS.

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO ESTABLISH, MAINTAIN AND ENFORCE A SUPERVISORY SYSTEM AND WRITTEN SUPERVISORY PROCEDURES (WSPS) REASONABLY DESIGNED TO DETECT AND PREVENT UNSUITABLE SHORT-TERM TRADING IN UNIT INVESTMENT TRUSTS (UITS). THE FINDINGS STATED THAT THE FIRM HAD NO PROCEDURES TO SPECIFICALLY ADDRESS THE SUITABILITY CONCERNS RAISED BY SHORT-TERM TRADING IN UITS. WHILE THE FIRM INSTITUTED A POLICY REQUIRING THE SUBMISSION OF A UIT SWITCH FORM TO DETECT THE PREMATURE SALES OF UITS, THE POLICY WAS NOT ENFORCED. IN ADDITION, THE FIRM HAD NO SURVEILLANCE OR EXCEPTION REPORTS DESIGNED TO DETECT UNSUITABLE SHORT-TERM TRADING OF UITS. AT LEAST THREE FIRM REPRESENTATIVES RECOMMENDED AND EFFECTED SHORT-TERM TRADES OF UITS IN THEIR CUSTOMERS' ACCOUNTS. IN ADDITION, ON SEVERAL OCCASIONS, THESE REPRESENTATIVES RECOMMENDED THAT THEIR CUSTOMERS USE THE PROCEEDS FROM THE SHORT-TERM SALE OF A UIT TO PURCHASE ANOTHER UIT WITH IDENTICAL INVESTMENT OBJECTIVES. AS A RESULT OF THIS TRADING, CUSTOMERS PAID EXCESS SALES CHARGES IN THE AMOUNT OF APPROXIMATELY $44,740.33. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO RETAIN INSTANT MESSAGES FROM EMPLOYEES, INCLUDING ITS SENIOR MANAGEMENT AND COMPLIANCE STAFF. Status: Final Sanction Detail: THE FIRM WAS CENSURED, FINED $100,000, AND ORDERED TO PAY $44,740.33, PLUS INTEREST, IN RESTITUTION TO CUSTOMERS. Summary: FOR PURPOSES OF SETTLING THE ABOVE-REFERENCED RULE VIOLATIONS, WHICH WERE IDENTIFIED DURING ROUTINE ANNUAL FINRA INSPECTIONS. CSM AGREED TO ENTER INTO THE AWC, THUS NEITHER ADMITTING NOR DENYING THE FINDINGS.

Allegations: THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") DEEMS IT APPROPRIATE AND IN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED PURSUANT TO SECTION 15(B) OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT") AND SECTIONS 203(E) AND 203(K) OF THE INVESTMENT ADVISERS ACT OF 1940 ("ADVISERS ACT") AGAINST CAPITOL SECURITIES MANAGEMENT, INC. ("CSM" OR "RESPONDENT"). THE COMMISSION FINDS THAT THESE PROCEEDINGS ARISE OUT OF BREACHES OF FIDUCIARY DUTY BY CAPITOL SECURITIES MANAGEMENT, INC., A DUALLY-REGISTERED INVESTMENT ADVISER AND BROKER-DEALER, IN CONNECTION WITH ITS MUTUAL FUND SHARE CLASS SELECTION PRACTICES AND ITS RECEIPT OF FEES PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 ("12B-1 FEES"). AT TIMES DURING THE PERIOD FROM JANUARY 1, 2014 THROUGH DECEMBER 31, 2016 (THE "RELEVANT PERIOD"), CSM PURCHASED, RECOMMENDED, OR HELD FOR CERTAIN ADVISORY CLIENTS MUTUAL FUND SHARE CLASSES THAT CHARGED 12B-1 FEES INSTEAD OF LOWER-COST SHARE CLASSES OF THE SAME FUNDS THAT WERE AVAILABLE TO THE CLIENTS. CSM AND ITS INVESTMENT ADVISER REPRESENTATIVES ("IARS"), IN THEIR CAPACITIES AS REGISTERED REPRESENTATIVES OF CSM, RECEIVED 12B-1 FEE REVENUE IN CONNECTION WITH THESE INVESTMENTS. CSM DID NOT ADEQUATELY DISCLOSE THIS CONFLICT OF INTEREST IN ITS FORMS ADV OR OTHERWISE. CSM ALSO BREACHED ITS DUTY TO SEEK BEST EXECUTION, BY CAUSING CERTAIN ADVISORY CLIENTS TO INVEST IN FUND SHARE CLASSES THAT CHARGED 12B-1 FEES WHEN SHARE CLASSES OF THE SAME FUNDS THAT PRESENTED A MORE FAVORABLE VALUE FOR THESE CLIENTS UNDER THE ARTICULAR CIRCUMSTANCES IN PLACE AT THE TIME OF THE TRANSACTIONS WERE AVAILABLE TO THE CLIENTS. FURTHERMORE, CSM FAILED TO ADOPT AND IMPLEMENT WRITTEN COMPLIANCE POLICIES AND PROCEDURES REASONABLY DESIGNED TO PREVENT VIOLATIONS OF THE ADVISERS ACT AND THE RULES THEREUNDER IN CONNECTION WITH ITS MUTUAL FUND SHARE CLASS SELECTION PRACTICES. CSM, ALTHOUGH ELIGIBLE TO DO SO, DID NOT SELF-REPORT TO THE COMMISSION PURSUANT TO THE DIVISION OF ENFORCEMENT'S SHARE CLASS SELECTION DISCLOSURE INITIATIVE ("SCSD INITIATIVE"). Status: Final Sanction Detail: RESPONDENT CSM IS CENSURED; ORDERED TO CEASE AND DESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 PROMULGATED THEREUNDER; SHALL PAY DISGORGEMENT OF $165,683, PREJUDGMENT INTEREST OF $37,731, AND A CIVIL MONEY PENALTY OF $55,000 TO THE COMMISSION; AND SHALL COMPLY WITH THE UNDERTAKINGS ENUMERATED IN THE ORDER. Summary: RESPONDENT CSM HAS SUBMITTED AN OFFER OF SETTLEMENT, WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. CSM WILLFULLY VIOLATED SECTION 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 THEREUNDER. ACCORDINGLY, IT IS HEREBY ORDERED THAT CSM CEASE AND DESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 PROMULGATED THEREUNDER; IS CENSURED; SHALL PAY DISGORGEMENT OF $165,683, PREJUDGMENT INTEREST OF $37,731, AND A CIVIL MONEY PENALTY OF $55,000 TO THE COMMISSION WITHIN TEN (10) DAYS OF THE ENTRY OF THIS ORDER; AND SHALL COMPLY WITH THE UNDERTAKINGS ENUMERATED IN THE ORDER.