SEC rejects Texas advisor's 'moral obligation' defense over trading in deceased client's account

The Securities and Exchange Commission has upheld disciplinary sanctions against a former broker in Texas who executed trades and withdrawals from a deceased client’s account without notifying his firm for over a year.

Charles Scott Burford, who was affiliated with Hilltop Securities Independent Network until 2019, argued that his actions were justified because he was acting at the request of the client’s widow.

While Burford is not currently registered as a broker with FINRA, he's still registered as an investment advisor in Texas, according to his IAPD record with the SEC.

In an order dated June 4, the SEC affirmed FINRA’s determination that Burford’s conduct breached industry rules and ethical standards, citing a pattern of concealment and unauthorized activity.

Burford’s client, referred to as LR in the SEC’s opinion, died in October 2016. Under Hilltop’s written supervisory procedures, advisors were required to immediately report a client’s death, refrain from accepting further instructions, and not authorize any withdrawals until legal documentation was provided.

In previous cases where customers died, the SEC noted that Burford would follow those procedures. But in LR's case, he waited more than a year to submit the client's death certificate, which he only did in order to take the required minimum distribution from the client's retirement account by year's end.

Over a fourteen-month period following the client's death, Burford facilitated a series of transactions in his account, including nine trades totaling nearly $130,000 and eight withdrawals adding up to $85,000. These were done at the widow’s request but without informing Hilltop.

“He admitted that he had ‘likely’ waited fourteen months to submit the death certificate because he did not want the firm to discover his transactions in LR’s brokerage account,” the SEC wrote in its decision.

In 2019, Burford finally requested that the account be frozen after learning that the client’s daughter planned to contest the will. That same year, he disclosed the prior activity to Hilltop, which subsequently ended its relationship with him.

FINRA later imposed a six-month suspension and a $10,000 fine, finding that his conduct violated Rule 2010. Burford appealed the decision multiple times, arguing that his actions were legal under Texas estate law as the brokerage account "legally" belonged to the widow following LR's death.

Burford also insisted that his "moral obligation to help [LR's widow was] more important than following procedures.”

The SEC disagreed. “Burford failed to observe high standards of commercial honor and just and equitable principles of trade by violating Hilltop’s written supervisory procedures,” the Commission stated, referring to the requirement FINRA members and associated persons are held to under Rule 2010.

The regulator also rejected Burford’s assertion that he should be spared sanctions because he did not financially benefit from the activity or cause harm, emphasizing how he had knowingly violated firm policy and tried to keep the transactions under wraps.

The SEC’s order concluded that the penalties imposed by FINRA were appropriate and aligned with industry guidelines, citing the duration of the activity and efforts to avoid detection as aggravating factors.

“The securities industry depends on the integrity of its participants, and Burford’s deceptive conduct reflects strongly on [his] fitness to serve in that industry,” the decision stated.