Former NAPFA Chairman Charged with Fraud

May 17, 2012

The SEC charged Mark Spangler, a Seattle-based investment adviser, and his firm with defrauding clients by secretly investing their money in two risky start-up companies that he co-founded.  Mr. Spangler is a former chairman of the National Association of Personal Financial Advisors (NAPFA).  He allegedly funneled approximately $47.7 million of client money into these private ventures, despite representing to them that he would invest primarily in publicly-traded securities.  Spangler served as chairman and CEO of one of the companies, which is now bankrupt.  The SEC found that such risky investments were inconsistent with the investment strategies that Spangler promised his clients and contrary to their investment objectives.
According to the SEC, Spangler assured his clients he was investing them in publicly-traded equities and bonds, not risky start-ups in which he had a personal interest.  It further found that he put his self-interest above the best interests of his clients is a disturbing abuse of trust.
Spangler raised more than $56 million from his clients since 1998 for several private investment funds he managed.  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.  The company had cash-poor with a history of net losses, generating revenue of less than $100,000 in its eleven years of operations.  Yet Spangler continued to treat the funds as the company’s piggy bank.
The SEC alleges that Spangler also failed to tell investors of fees TSG collected for “financial and operational support” from these companies, which were essentially paid with client money received from the funds.  Therefore, Spangler and his firm secretly reaped $830,000 from the companies in addition to the management fees that TSG received from clients.
According to the SEC, Spangler concealed his diversion of client funds until 2011, when he placed TSG and the funds he managed into state court receivership and disclosed the diverted funds.
Click http://sec.gov/litigation/complaints/2012/comp-pr2012-95.pdf to access the administrative action.


Categories

Investment Advisers, Investment Companies