Former NAPFA chairman Spangler gets 16 years for fraud, must pay $19.8M in restitution

Thirty-two criminal counts include money laundering, investment adviser fraud, wire fraud

Mar 14, 2014 @ 3:26 pm

By Darla Mercado

fraud, adviser, napfa, mark spangler, fbi
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Mark Spangler in 2002 (Kathleen King)

Mark F. Spangler, an ex-chairman of the National Association of Personal Financial Advisors, has been sentenced to 16 years in prison on 32 criminal counts that include money laundering, investment adviser fraud and wire fraud.

Mr. Spangler, 58, received his sentence in the U.S. District Court in Seattle on Thursday. In addition to serving time in prison, he faces three years of supervised release and must pay $19.8 million in restitution, according to a statement from the Federal Bureau of Investigation.

The disgraced financial adviser — who was chairman of the fee-only adviser organization NAPFA from 1996 to 1998 — was convicted last November.

“[Mr. Spangler] risked his clients' retirement funds, money for their children's education, for charitable giving and for their livelihood on risky startup ventures — the very investments they told him they wanted to avoid,” U.S. Attorney Jenny A. Durkan noted in the FBI statement.

“He now has a long time to think about all the harm he has done.”

In an e-mailed statement attributed to NAPFA national board chair Linda Leitz, NAPFA spokeswoman Laura Fisher wrote, “While this illegal activity happened several years after Mark Spangler was chairman, the situation is very unfortunate for all involved.”

The scheme involving Mr. Spangler goes back to April 2003, according to the federal indictment. Between 2003 and 2011, he and his firm, The Spangler Group, allegedly moved some $46 million in client dollars into a pair of startup firms, Terahop Networks Inc., a now-defunct manufacturer of wireless devices, and Tamarac Inc., a portfolio management software firm.

Mr. Spangler was a founder of Terahop and a co-founder of Tamarac. Tamarac was purchased by Envestnet Inc. in 2012.

Envestnet | Tamarac did not provide comment.

Though clients' dollars were allegedly being put toward Terahop and Tamarac, Mr. Spangler indicated on their statements that their funds were invested in publicly traded securities, “which were generating a reasonable rate of return,” according to the indictment.

For instance, in 2011, Mr. Spangler allegedly pitched new investors, telling them that his investments were doing “extremely well,” and that “$10,000 invested in the fund in 2000 was worth more than $21,000 at the end of 2010 (including annual interest payments of 7%+).” This wasn't true, according to federal authorities.

Rather, while clients were told that they were in a fund that would invest in “debt and hybrid securities” which “may” be traded on public markets, their money was allegedly invested in Terahop, “which was generating no revenue and which [Mr. Spangler] shut down in April 2011,” according to the indictment.

Clients allegedly received phony quarterly account statements that inflated their account values. When some of them tried to liquidate their investments, Mr. Spangler allegedly used other investors' funds to pay the clients who wanted out, according to the indictment.

For instance, in 2009, when one client sought liquidation after finding out what her money was invested in, Mr. Spangler allegedly told her he wouldn't be able to provide her with the funds until “several quarters in the future,” according to the indictment. Eventually, Mr. Spangler used other clients' money to help cover a transfer back into the exiting client's account, according to the indictment.

Eventually, Mr. Spangler didn't have enough money to cover all of the liquidation requests and he had to put his investment firm into receivership, according to the FBI.

Mr. Spangler told his clients that their assets were valued at over $73 million. But the adviser eventually ran out of money and was only able to recover $28 million for the victims, leading to a loss of about $50 million, according to the FBI.

A related civil suit brought by the Securities and Exchange Commission is continuing.

A call to Mr. Spangler's attorney, John Carpenter, was not returned.

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