The Securities and Exchange Commission (SEC) today charged Seattle-based investment adviser and former National Association of Personal Financial Advisors (Napfa) chairman Mark Spangler with defrauding clients by secretly investing an estimated $47.5 million of their money in two risky start-up companies he co-founded.
The SEC alleges that Spangler, 57, who was Napfa chairman in 1998, funneled the money into these private ventures despite telling clients that he would invest primarily in publicly traded securities.
Spangler served as chairman and CEO of one of the companies, which is now bankrupt. Spangler's risky investments were inconsistent with the investment strategies that he promised his clients and contrary to their investment objectives, the SEC says.
The U.S. Attorney's Office for the Western District of Washington today filed parallel criminal charges against Spangler.
The SEC's complaint, filed today in federal court in Seattle, claims that 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 his clients' money into two private technology companies he created. One of the companies received nearly $42 million from the funds before shutting down operations, the SEC says. 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 agency charges.
The SEC alleges that Spangler 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. Spangler and his firm secretly reaped $830,000 from the companies in addition to any management fees that TSG received from clients, the SEC charges.
The SEC also alleges that 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.
"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," said Marc Fagel, director of the SEC's San Francisco Regional Office. "For an investment advisor to put his self-interest above the best interests of his clients is a disturbing abuse of trust."
The SEC's is seeking injunctive relief, disgorgement with prejudgment interest of any ill gotten gains, and unspecified financial penalties