FINRA barred Scott Donovan Schroeder, formerly a broker at Milkie Ferguson Investments, for making unsuitable investment recommendations to elderly customers. According to FINRA, Scott Schroeder also made material misrepresentations and omitted to disclose material facts to customers. Schroeder also allegedly went against Milkie Ferguson policies by facilitating a loan application for a customer who used the loan proceeds to make an investment recommended by Schroeder and by failing to disclose the source of the customer’s investment funds to his firm.
According to FINRA, between August 2008 and March 2010, Schroeder made unsuitable investment recommendations to three customers in violation of NASD Rules 2310 and 2110, and the more modern FINRA Rule 2010. Schroeder also made material misrepresentations and omitted to disclose material facts to customers in violation of NASD Rule 2110 and FINRA Rule 2010.
In August 2008, Scott Schroeder allegedly made unsuitable investment recommendations to a married elderly couple. Their investment objectives were: income, capital preservation and capital appreciation. Their risk tolerance was moderate. The elderly couple lived off of Social Security and supplemented their income with monthly distributions from their retirement account. Their goal was a safe investment that would generate monthly income. Scott D. Schroeder recommended that the elderly couple liquidate a portion of their mutual fund holdings and use the proceeds to invest over half of their savings into high-risk investments, where the couple stood a chance of losing all of their investment funds. Schroeder recommended that the elderly couple invest over 60% of their retirement savings into a high-risk product which was unsuitable in light of their age, net worth, income, investment objectives, risk tolerance and retired status. One of the two investments that Schroeder recommended defaulted and the elderly couple’s investment went to $0. Further, Scott Schroeder failed to disclose that the income distribution payments that were sent to the couple each month (allegedly from earnings on their investments) included a portion of the emergency cash reserve funds in their Milkie account.
In June 2009, Schroeder allegedly recommended that a customer invest in Retirement Value, LLC (“RV”). However, the customer did not use his own money. Instead, Scott Schroeder assisted the customer in obtaining a line of credit for $400,000. After helping the loan get approved, Scott Schroder invested the entire loan amount into RV. Schroeder did not disclose the source of the funds to Milkie Ferguson Investments. Although the RV investment is no longer making principal or interest payments the customer is still responsible for making monthly payments on the line of credit.
In January 2010, Scott Schroeder allegedly recommended that a 74-year-old retiree, who was living off Social Security and his wife’s income, invest 33% – 40% of his retirement assets in high-risk investments which were unsuitable in light of the customer’s age, net worth, income, retirement status, investment objectives, and risk tolerance. The customer’s investment objective was long-term growth, and his risk tolerance was moderate. Scott Schroeder recommended that the retiree invest into two products, one of which was RV (as above) and had a receiver put in place to take over its business operations. It stopped making principal or interest payments. (Very similar to going to $0).
Between August 2008 and March 2010, Scroeder allegedly made material misrepresentations and omitted material facts in connection with offers and sales of certain investment products. Scott Schroeder failed to disclose to the above customers that the CEO of RV had prior disciplinary history for actions brought by the SEC and TSSB in connection with fraudulent offers and sales of investment products to the public. According to the FINRA document, Schroeder also misrepresented the safety of the investments he solicited to his customers. He made it seem like the investments would not put the customers’ principal at risk, when in fact the offering documents for both investments made it clear that he investments are high-risk and that investors may lose all of their investment funds.
According to the FINRA Letter of Acceptance, Waiver and Consent (“AWC”) Scott Schroeder was employed with Milkie Ferguson Investments, Inc. from 2003 to January 2012. FINRA then mentions that Schoreder has not since associated with another FINRA member firm. However, Scott Schroeder seems to remain involved in the financial industry, and still hosts a “Retirement Boom” radio show which aims to “help clients who are nearing retirement find the best ways to protect their nest eggs from market risks and changes in tax laws.” He also blogs about financial products, suggesting clients to contact him for retirement account advice.
Schroeder has a history of alleged violations with regulatory firms. In November 2012, FINRA suspended Schroeder for two months and fined him $15,000 for violations of FINRA Rule 2010 and NASD Rule 2110 for contravening Section 5 of the Securities Act of 1933. Schroeder consented to findings that he sold Provident Royalty Shale offerings, unregistered securities offered purusant to exemptions from registration, after statements were deemed to be general solicitations by people on a radio show. The securities could not be sold through general solicitations. Schroeder’s sales constituted impermissible sales of unregistered securities.
According to archived audio recordings of the show captured by FINRA, the investment was advertised with the following language, “This is a preferred stock in a partnership. That 15% income which comes monthly starting at about four months is taxed at the 15% bracket like a stock dividend . . . It’s for accredited investors, number one. $50,000 for the life settlements, $25,000 for the natural gas two year investment.” Radio advertising and investment “advice on air” can be misleading and costly. According to our research, Scott Schroeder was still offering investment advice on air, on a regular basis.
Firms like Milkie Investments have a duty to their clients. The duty is to protect, perform due diligence and manage customer’s accounts responsibly. Had the firm followed through with their duties, most likely, a routine internal investigation within the firm should have alerted supervisors and managers to Scott D. Schroeder’s misrepresentation of investments and unsuitable investment recommendations.
If you have invested with Scott Donovan Schroeder, or Milkie Ferguson Investments, or have purchased either the Provident Royalty Shale offerings, or invested into Retirement Value, your investment accounts should be reviewed by a professional to determine if they have been affected by Scott Schroeder’s unsuitable investment recommendations, general solicitations, material misrepresentations and omissions.
Guiliano Law Group
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