Appeals court upholds SEC violation finding against deceased owner of San Diego financial planning firm

By Takesha Thomas | Oct 29, 2018

US Court of Appeals for the Ninth Circuit  

SAN FRANCISCO — A federal appeals court has upheld part of a lower court ruling that the now deceased owner of a San Diego financial planning company violated US Securities & Exchange Commission rules for more than 30 years.

Although Louis Schooler has since died, the US Court of Appeals for the Ninth Circuit affirmed in an opinion handed down Sept. 26 that Schooler's firm, Western Financial Planning Corporation, did indeed violate SEC rules. 

"The district court primarily rested its decision on the fact that investors placed their money with Schooler significantly before their general partner interests (and associated powers) became effective,"  the appeals court said in its 17-page opinion.

Circuit Appeals Court Judge N.Randy Smith wrote the opinion in which Judge Sandra S. Ikuta and Judge Stephen M. McNamee concurred.

Schooler violated federal securities law by selling unregistered securities and defrauding his investors, according to the opinion. Schooler "engaged in the business of identifying tracts of land to purchase and sell to investors by means of general partnership interests," the opinion said.

Schooler continued this practice between 1978 and 2012. Once the parcels were identified, Schooler would "turn around and mark up the price (often by several multiples of the price originally paid)", the opinion said. His company sold "3,400 such interests over the lifetime of the operation" before the SEC brought suit against him and his company in 2012, the opinion said. 

Schooler would not make effective his partnership agreements "upon delivery of investor funds", unlike traditional agreements, according to the opinion. 

"Rather, the agreement stated that it became effective upon the date identified" which was "intentionally left blank," the opinion said. 

Investors in turn would have no say in their investments at the time but it was during this "precise time that nearly all meaningful decisions were made that would determine the success or failure of the investment," the opinion said.

"[Schooler] controlled how many interests to market and sell in each partnership, diluting the power of partners by selling a large number of interests in each general partnership," the opinion said.

Schooler determined the properties to purchase, the price the partnerships would pay and how many different general partnerships to include as co-tenants of a single property, according to the opinion.

The appellate court agreed with the lower court that Schooler violated federal securities law by selling unregistered securities which, in turn, defrauded his investors. 

The appellate court also confirmed that the civil penalty against Schooler be vacated since he died during the appeals process. Additionally, the appeals court upheld the lower court's ruling that Schooler's estate be required to pay back funds to those who lost investments in the scheme. 

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