Capstone Financial

The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that David John Melilli (Melilli), formerly employed by Capstone Financial LLC, has been subject to at least three customer complaints during his career. According to records kept by the Financial Industry Regulatory Authority (FINRA), Melilli’s customer complaints allege that Melilli engaged in unauthorized trading and recommended unsuitable investments.

In April 2021, FINRA made a preliminary determination to recommend that disciplinary action be brought against Melilli for various allegations. These include unsuitable and excessive trading in customer accounts, using discretion without written authorization in customer accounts, unauthorized trading in the account of a deceased customer, forging customer signatures on account documents and causing member firm to maintain inaccurate books and records, sending written communication entitled “Writing Covered Calls” to customer without obtaining prior approval from member firm and use of a misleading communication with a customer, using text messages to conduct securities related business in violation of applicable firm policies and causing firms to fail to maintain accurate books and records, and opening and maintaining multiple outside securities accounts without the prior consent of member firms. Investigation is pending concerning these allegations.

In September 2020, a customer complained that Melilli violated the securities laws by alleging that Melilli engaged in authorized trading. The claim alleges $5,000 in damages and is currently pending.

Also in September 2020, a customer complained that Melilli violated the securities laws by alleging that Melilli made risky investments that were not fully understood and that management fees may not have been assessed correctly. The claim was denied.

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Capstone Asset Planning Company (CAPCO) alleging that from 2010 through 2012, CAPCO distributed communications to the public concerning the Capstone Fund that failed to accurately reflect the change in the fund’s performance. In addition, FINRA alleged that the Capstone Fund’s website contained a misleading statement concerning the fund’s redemption policy and compared church bonds to corporate bonds without disclosing the material differences between them. As a result, FINRA found that CAPCO violated the content and communications standards under Rules 2210(d)(1)(A), 2210(d)(2)(B), and 2210(d)(2)(B).

CAPCO is a brokerage firm with one office in Houston, Texas, and 22 registered representatives. CAPCO is a mutual fund underwriter and is a subsidiary of Capstone Financial Services, Inc. CAPCO served as the principal underwriter and distributor of shares of the Capstone Church Capital Fund (Capstone Fund). Capstone Fund’s holdings were approximately 87% church mortgage bonds and 13% church mortgage loans. From 2009 to 2012, the net assets of the Capstone Fund declined as a result of the decrease in the fair value of the fund’s assets. The Capstone Fund stopped accepting sales on January 24, 2013.

Under NASD Rule 2210(d)(1)(A) communications must be “based on principles of fair dealing and good faith,” “fair and balanced,” and must “provide a sound basis for evaluating the facts in regard to any particular security.” Similarly, NASD Rule 2210(d)(1)(B) prohibits members from making “false, exaggerated, unwarranted or misleading statement or claim in connection with any communication.”

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