Mark Spangler, former national chairman of the National Association of Personal Financial Advisors (NAPFA), once pushed financial professionals to act in the best interests of their clients.
Now, however, he’s accused of securities fraud; he allegedly diverted $47 million of his clients’ funds into private ventures, and an FBI agent claims he made false statements during the bureau’s investigation of his actions over the past 15 years.
Ronald J. Friedman, the attorney representing Mr. Spangler, told the New York Times his client had been cooperating with the federal investigation. He added that the allegations have “raised interesting questions about discretionary authority in accounts.”
The Securities and Exchange Commission charges Spangler and his firm for defrauding clients by secretly investing their money in two risky start-up companies Spangler co-founded. The group alleges that Spangler funneled approximately $47.7 million of client money, despite representing he’d invest primarily in publicly traded securities.
Spangler served as chairman and CEO of one of the companies, which is now bankrupt. Such risky investments were inconsistent with the investment strategies that Spangler promised his clients and contrary to their investment objectives.
The U.S. Attorney’s Office for the Western District of Washington today announced parallel criminal charges against Spangler.
“Spangler assured his clients he was investing them in publicly-traded equities and bonds,” says Marc Fagel, Director of the SEC’s San Francisco Regional Office.
He adds, “For an investment adviser to put his self-interest above the best interests of his clients is a disturbing abuse of trust.”
According to the SEC’s complaint filed in federal court in Seattle, Spangler raised more than $56 million from his clients since 1998 for several private investment funds he managed. And beginning around 2003, without notifying investors in the funds, Spangler and his advisory firm, The Spangler Group (TSG), began diverting the majority of client money into two private technology companies he created.
One of the companies received nearly $42 million from the funds before shutting down operations. It had long been a cash-poor company with a history of net losses, generating less than $100,000 in revenue during its 11-year history. Yet Spangler continued to treat the funds as the company’s piggy bank.
The SEC alleges that Spangler also did not tell investors that TSG collected fees for financial and operational support from these companies, which were essentially paying these fees with the client money they had received from the funds.
Therefore, Spangler and his firm secretly reaped $830,000 from the companies in addition to any management fees that TSG received from clients.
According to the SEC’s complaint, Spangler concealed his diversion of client funds for years. He disclosed it only after he placed TSG and the funds he managed into state court receivership in 2011.
The SEC’s complaint charges Spangler and TSG with violating, among other things, the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The complaint seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.
Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office conducted the SEC’s investigation, with assistance from Michael Tomars, Peter Bloom, and Christine Pelham of the investment adviser/investment company examination program. Robert L. Tashjian will lead the SEC’s litigation.
Read the SEC complaint.