Mystery Surrounds Former Broker Barred from Securities Industry

SEC SealIt is not unusual for SEC administrative law judges to suspend individuals from the securities industry for egregious misconduct. This is particularly true when the courts enjoin individuals, such as Louis V. Schooler, from future securities law violations. As Administrative Law Judge Carol Fox Foelak noted, "[t]he Commission considers an antifraud injunction to be especially serious and to subject a respondent to the severest of sanctions."

It is unusual, however, for a respondent to be absent from the proceedings as described in a footnote in the opinion. According to the footnote:

Whether Schooler is living and, if so, his whereabouts, are unknown. See Schooler’s counsel’s July 14, 2016, email (reporting his death); Division’s August 11, 2016, Statement (“[T]here has been a report that Schooler’s yacht ran aground on a reef in or around Tahiti, no remains were recovered, and no death certificate has been issued. At present the U.S. State Department considers Schooler to be missing rather than dead.”).

In the initial action brought in federal district court, the SEC alleged that Schooler and his firm, Western Financial Planning Corp., ran a real estate investment fraud that raised approximately $50 million from investors nationwide. Schooler allegedly sold units in partnerships that Western had organized to buy vacant land in Nevada and hold for sale at a profit at a later date. The Commission claimed that Schooler and Western failed to inform investors that they were paying an exorbitant mark-up on the land, in some cases more than five times its fair market value. Schooler and Western also failed to tell investors that the land held by the partnerships was often encumbered by mortgages that Western used to help finance the initial purchase of the land.

The district court found for the SEC, and ordered Schooler to pay more than $147 million in disgorgement and prejudgment interest, as well as a civil penalty of approximately $1 million. The court also enjoined Schooler from future violations of the antifraud and registration provisions of the federal securities laws. Subsequently, the SEC brought an administrative proceeding to bar him from the securities industry.

Administrative Law Judge Foelak granted the Enforcement Division’s request for a bar order. According to ALJ Foelak, “[t]he public interest requires a severe sanction when a respondent’s past misconduct involves fraud because opportunities for dishonesty recur constantly in the securities business.” She found his conduct to be egregious and recurrent, and that his lack of remorse indicated the likelihood of future misconduct.

Schooler stated rather dramatically in a pleading that the Enforcement Division was “acting out of pure vengeance and spite, akin to not only killing a person, but kicking and mutilating the corpse” in prosecuting him. At the end of this statement quoted in her initial decision, ALJ Foelak appended the footnote describing his possible disappearance in Tahiti.

For more information on Administrative Law Judge actions, see Bloomberg Law’s SEC ALJ Enforcement Analytics and SEC ALJ Enforcement Tracker.

In the Matter of Louis v. Schooler, Admin. Proc. File No. 3-17115 (Aug. 23, 2016).