James Burleson allocated profitable trades to himself and unprofitable ones to his clients, according to a complaint filed by the SEC.
Federal authorities have charged a Petaluma financial adviser with bilking his clients out of millions of dollars in a “cherry-picking” scheme.
According to charges filed Nov. 21 by the Securities and Exchange Commission, 57-year-old James Burleson, a Petaluma resident and majority owner and principal of Petaluma-based Burleson & Company, LLC, defrauded his clients between August 2020 and October 2022, causing them to lose over $3 million while he pocketed $1.8 million.
Reached by phone Tuesday, Burleson said he was unable to comment on the legal matter.
Burleson’s firm had over 200 clients during this period, the SEC said in a news release, and authorities allege he fraudulently benefited from their investments by allocating profitable trades to his own account and unprofitable trades to client accounts, i.e. “cherry-picking.”
According to the SEC complaint, Burleson made risky options in his firm’s “block” account – a collective trading account that included multiple clients – and then frequently waited until after markets closed to see whether those trades were profitable to himself or to his clients.
He then allocated profitable trade options to his account, resulting in over $1.8 million in profits with a 26.5% return rate. Conversely, he allocated the unprofitable options to client accounts, resulting in over $3.2 million in losses with a -5.1% return rate.
“The probability that such wildly divergent returns occurred by chance is less than one in a million,” the complaint stated.
As of March 2023, his firm managed over $450 million in assets, which it sold to another adviser by May of that year, according to the complaint. Burleson was a registered investment adviser with the SEC from 2006 until May 2023.
He maintained his clients’ brokerage accounts at Charles Schwab & Co., Inc., including his own personal account. Representatives from Schwab notified Burleson in March 2021 that they “had identified potential preferential options” allocated to his account, and they suggested he seek more guidance, SEC officials said.
Burleson responded that it would be “no big deal” to trade directly in his personal account, but he continued to trade through the firm’s block account with a few adjustments, according to the complaint.
Again, Schwab representatives noticed that he continued this preferential trading in October 2022, and by November of that year they terminated their relationship with the Petaluma firm.
“For many of his clients, Burleson had been granted discretion to execute trades on the client’s behalf without pre-authorization,” the complaint states.
“This scheme was inherently deceptive because cherry-picking is virtually impossible for clients to detect on their own. Clients are usually unable to see how their adviser allocates trades and rely on their adviser to meet his fiduciary duty to act in their best interest and put their financial interests ahead of his own,” the complaint states.
“Thus, each time Burleson allocated a trade based on a security’s performance was an inherently deceptive act in furtherance of the scheme.”
The SEC complaint, filed in U.S. District Court in San Francisco, seeks a jury trial. An initial case management conference is scheduled for Feb. 21, 2025.
An online search indicates Burleson & Company has offices at 201 1st St. in downtown Petaluma.
Burleson is listed as a member of the board of directors for the Sonoma-Marin Fair, which he has served on since 2006 and where he previously served as board president. He is also listed as a committee member on the Petaluma Rotary Club Foundation’s website.
A 2018 state news release stated that Burleson was a treasurer with the Petaluma Rotary Club Foundation and a member of the St. Vincent de Paul Parish Finance Council.
Forbes listed Burleson as 59th for “Best-In-State” wealth advisers in 2023, based on a period from June 2021 to June 2022. The typical net worth of relationships at that time ranged from $2 million to $10 million, according to Forbes.
You can reach Staff Writer Jennifer Sawhney at 707-521-5346 or [email protected]. On X (Twitter) @sawhney_media.
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