Petaluma financial adviser settles with SEC for $2.2 million

A financial advisor in Petaluma has been ordered by the Securities and Exchange Commission (SEC) to repay over $2.2 million in settlement for misappropriating millions from his clients. James Burleson, the founder of Burleson & Company, LLC in Petaluma, was accused of defrauding clients of more than $3 million while pocketing $1.8 million for himself.

The SEC settlement, issued in August, required Burleson to reimburse clients over $1.8 million, along with $200,000 in interest and a $230,000 penalty for violating federal securities laws. Additionally, Burleson is prohibited from holding certain positions within the investment industry for the next five years, with a possibility of reapplying at the end of that term, subject to compliance with the settlement order.

According to the complaint filed in August 2020, Burleson engaged in risky stock options trading using client accounts from August 2020 to October 2022. He allegedly allocated profitable trades to his personal accounts while assigning unprofitable ones to his clients, a practice known as “cherry-picking.” This resulted in a 26.5% return rate of $1.8 million for him and losses amounting to $3.2 million for clients, with a -5.1% return rate.

The complaint highlighted the deceptive nature of cherry-picking, which is difficult for clients to detect independently. Clients rely on advisors to act in their best interests and prioritize their financial well-being over personal gain. By misrepresenting profitable and unprofitable trades, Burleson breached this fiduciary duty to his clients.

The cherry-picking scheme was first noticed by representatives at Charles Schwab & Co. in March 2021, where Burleson & Company held client accounts and Burleson maintained a personal account. Schwab alerted Burleson to potential preferential options allocated to his account, leading to further scrutiny of the trading activity.

Following more instances of preferential trading activity in October 2022, Schwab terminated its relationship with Burleson & Company in November of the same year. These actions ultimately led to the SEC charges and subsequent settlement requiring Burleson to repay the misappropriated funds and facing penalties for violating securities laws.

Burleson’s legal team declined to comment on the settlement and charges. The case remains a cautionary tale of the consequences of financial advisors breaching trust and engaging in deceptive practices, emphasizing the importance of transparency and integrity in the industry.