← Broker database 2021-11-08
David John Melilli Barred for Refusing to Produce Documents About Discretionary Trading
According to FINRA, David John Melilli was barred from association with any FINRA member in all capacities for refusing to produce documents and information requested by FINRA in connection with its investigation into whether he exercised discretion without written authorization in a customer's account.
FINRA's investigation focused on allegations that Melilli made trades in a customer account without obtaining the customer's prior approval for each transaction. Exercising discretion—the ability to decide what securities to buy or sell, the amount, and the timing, without consulting the customer first—requires written authorization from the customer and written acceptance by the firm. These requirements protect customers from unauthorized trading and ensure that discretion is only exercised when both the customer and firm have explicitly agreed to such an arrangement.
When FINRA requested documents and information to investigate these allegations, Melilli refused to provide them. This refusal prevented FINRA from determining whether he had engaged in unauthorized discretionary trading and assessing what risks, if any, he might pose to other investors.
Unauthorized discretionary trading is a serious violation because it deprives customers of control over their own accounts. Even if the representative believes certain trades are in the customer's best interest, the customer has the right to approve transactions in their account unless they have specifically granted discretionary authority in writing. Representatives who exercise unauthorized discretion may make trades that are inconsistent with the customer's investment objectives, risk tolerance, or financial situation.
The requirement to produce documents and information to FINRA is fundamental to the regulatory system. FINRA cannot effectively protect investors if registered persons can simply refuse to provide evidence when investigations are initiated. Consequently, refusing to produce requested documents is treated as a violation warranting a bar from the industry, regardless of whether any underlying misconduct is proven.
Investors should understand the difference between regular brokerage accounts and discretionary accounts. In regular accounts, the representative must obtain approval for each trade. In discretionary accounts, the representative can make trades without prior approval for each transaction. Customers should only grant discretionary authority when they have significant trust in the representative and should monitor discretionary accounts carefully to ensure trades remain appropriate. Any representative who makes unauthorized trades in a non-discretionary account has violated industry rules.