Appellate Panel Vacates Penalties After Defendant’s Death

The Securities and Exchange Commission claimed victory in the 9th Circuit after an appellate panel affirmed a judgment against a financial planning corporation for selling unregistered securities, but a named defendant’s death during the appeal spared his estate of civil penalties.

The case  was originally filed in the Southern District of California, which found Western Financial Planning Corporation defrauded investors by purchasing tracts of land and selling the land to investors through general partnership interests as unregistered securities.

Louis Schooler, a previously named defendant, made land purchases and quickly turned them around at a marked up price, “often by several multiples of the price originally paid,” Judge N. Randy Smith’s ruling states.

Schooler passed away during the appeal, but was replaced by the executor of his estate, E. Andrew Schooler. In light of Louis’s death, the court vacated civil penalties imposed on Andrew, a move the SEC fully acknowledged, according to the opinion.

However, the panel still affirmed the District Court’s judgment in all other respects.

“Schooler sold interests in a general partnership to the investors that would collectively hold the land (typically with several other general partnerships),” according to the opinion. “Schooler marketed these general partnership interests to individuals across the United States and ultimately sold 3,400 such interests over the lifetime of the operation.”

Judge Smith determined multiple factors were necessary to establish when a general partnership should be instead treated as a security, including the amount of power one partner has in the arrangement and the level of experience on the part of the partner to exercise power under the agreement.

Smith found the district court properly determined the partnerships were investment contracts and therefore governed by securities laws.

“Even giving Schooler the benefit of all reasonable inferences, the collective force of the following undisputed facts identified by the district court establish as a matter of law that the general partnership interests in this case were securities under federal law,” Judge Smith wrote.

Louis had total control over investor payments and the execution of partnership agreements, according to the opinion.

“We likewise affirm the district court’s determination that Schooler sold unregistered securities in violation of federal law,” the ruling states. “Schooler essentially conceded to the district court that his sales of general partnership interests failed to meet the securities registration requirements.”


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