As the owner of San Diego’s Western Financial Planning Corporation, Louis Schooler hoodwinked a lot of people over three decades. Early this year, following a legal struggle that went on for four years, Schooler was ordered to cough up almost $150 million for running a real estate partnership scam since 2007. The Securities and Exchange Commission had charged him with fraud in September of 2012.
The federal judge handling the case, Gonzalo P. Curiel, is also overseeing the government’s case against Trump University and has been the target of The Donald’s bluster.
In July, traveling alone, Schooler, a resident of Solana Beach, embarked on a 3500-mile trip on his Hylas 42 sailing boat, named Entertainer, to the Marquesas Islands, part of French Polynesia. They are 750 miles northeast of Tahiti, where Schooler next headed.
Schooler didn’t make it. The securities agency will only say that one of Schooler’s lawyers reported that Schooler is dead. The receiver in the case, Thomas Hebrank, told victims that Schooler “is officially considered ‘missing’ at this point by the U.S. Department of State because no death certificate or other confirmation of death has been issued by local authorities.” Hebrank did not reply to my questions. I called Schooler’s two lawyers, Philip Dyson and Eric Hougen, asking if Schooler might have been the target of a criminal investigation, in addition to the securities agency’s civil complaints. I got no response. I have relied in part upon Andy Turpin, managing editor of Latitude 38 of San Francisco, the biggest sailing magazine on the West Coast. Turpin has been following the story in recent editions. I have been following the financial hijinks of Schooler and his brother John since 2011.
Latitude 38 said in its latest edition that details of Schooler’s supposed death “are curious, if not downright suspicious.” On July 5, a New Zealand maritime radio operation received a distress call from the Entertainer. The location of the call was suspicious, according to Latitude 38. The distress was relayed to French Polynesia’s search-and-rescue operation, which sent out a plane that located the boat. The searchers noted that the vessel had changed course and turned off navigation lights. A few days later, investigators learned that Schooler had called his wife on July 5 and reported that he did not feel well and had hurt his back. A police helicopter spotted, the Entertainer aground on Takapoto Atoll, which is only six miles long and has 380 residents.
A dead body was seen on the craft, the police reportedly said, but because of rough weather, police did not winch down to the boat. The next day, the police intended to fetch the body for an autopsy, but it was gone. Some think the body may have washed out to sea. Others are skeptical. French Polynesian police are said to be investigating but are not talking.
Schooler and his brother, John Schooler, were at the top of an interlocking network of financial industry holdings. John Schooler ran a brokerage house, WFP Securities. The San Diego Reader reported in April of 2011 that WFP clients bitterly complained that they had been put in highly inappropriate investments. No fewer than 20 arbitrations and written demands had been registered against the web of Schooler enterprises. The major complaint against WFP was that naive clients had been put in highly speculative investments — including a Ponzi scheme — that paid fat commissions to brokers.
Louis Schooler indirectly owned half of WFP and all of Western Financial Planning. In addition to selling securities, WFP brokers peddled the real estate partnerships sold by Western Financial. WFP shut its doors in 2011.
Six years ago, I began fielding complaints from investors who had lost their shirts entrusting their money to WFP. Some of them suspected they had gotten bamboozled in Western’s real estate partnerships, too.
In September of 2012, the Securities and Exchange Commission filed a complaint against Lou Schooler and Western. “Schooler buys raw, undeveloped land in the southwest United States, then sells the land at grossly inflated prices to general partnerships composed of numerous unsophisticated investors,” charged the commission. But Schooler and Western “do not disclose this enormous markup and mislead the investors about the true value of the underlying property.”
As an example, the agency said that Western bought a piece of land in Nevada for $1.85 million in 2010. Then it sold the land to the partnerships at prices valuing the land at $9.3 million — “about a 500 percent markup,” noted the agency.
It charged that Western showed investors real estate “comps,” or comparable market prices for similar property. “In reality, the ‘comps’ are not at all comparable to the property being offered,” charged the agency. Also, Western did not tell investors that many of the properties were encumbered with mortgage debt used to purchase the land.
When some investors smelled a rat in Schooler’s basement, he offered to refund their investment in exchange for a promise not to tell other investors or go to authorities, charged the agency, calling the ploy an offer of “hush money.”
Schooler and his firm were charged with various violations of securities laws, including selling unregistered securities.
Then came the legal war of words. Schooler’s lawyers argued that Western’s general partnerships were not, by definition, securities.
Schooler’s lawyers contended that over many decades, the law has held that “interests in general partnerships are not securities” and “interests in raw land held solely for market appreciation are not securities,” said financial writer Doug Cornelius. Initially, Curiel was swayed by such arguments.
If these raw-land partnerships were not securities, the government’s charges would go out the window. But, at another point, Curiel ruled that Western’s partnerships were, indeed, securities because the partners were such financial greenhorns that they couldn’t intelligently exercise their partnership powers, and the investors were so dependent on so-called managerial abilities of Western that they couldn’t competently replace the partnership managers.
On January 21 of this year, Curiel granted the securities agency’s request for Schooler’s disgorgement of $147.6 million, representing profits he made while breaking the law. Since then, there have been subsequent hearings, and some loose ends of the case were still hanging when Schooler took his solo trip to the Marquesas in July and may have lost his life.