The National Association of Personal Financial Advisors is worried that its reputation will be tarnished in light of a second high-profile investigation involving one of its former executives
The National Association of Personal Financial Advisors, whose members consider their fee-based model to be the gold standard for unbiased advice, is worried that its reputation will be tarnished in light of a second high-profile investigation involving one of its former exeuctives.
“The fact that it's NAPFA makes it more front and center than if it were someone else, so we do have concerns about [our reputation],” said Susan John, the group's chairwoman. “We hold our members to the highest standards possible.”
On Sept. 23, FBI agents searched the home of Mark F. Spangler, who was chairman of NAPFA in 1999, in a probe related to allegations that the adviser — who owns The Spangler Group Inc. in Seattle — swindled clients out of millions of dollars.
Federal authorities were seeking evidence of a crime related to mail, wire and securities fraud, as well as money laundering, according to the search warrant. No charges have been filed against Mr. Spangler, according to Emily Langlie, a spokeswoman with the Justice Department.
News of the FBI raid was originally reported by seattlepi.com in early October.
Advisers say that the episode is a black eye for the industry and for NAPFA — especially since this is the second time one of its former executives has landed on investigators' radar.
In 2009, the Securities and Exchange Commission charged James Putman, who served as president in 1996 and 1997, was charged with accepting some $1.24 million in kickbacks related to unregistered investment pools.
The assets of Mr. Putman's firm, Wealth Management LLC in Appleton. Wis., eventually were frozen, and the firm later went into receivership. Mr. Putman is still in civil litigation with the court-appointed receiver, Faye B. Feinstein, and with the SEC.
Mr. Putman did not return telephone calls seeking comment.
“The fraud that exists and permeates is horrible, and it's a major blow since [Mr. Spangler] is a former NAPFA president,” said Rick Egan, an adviser with Cadence Wealth Management LLC in Seattle. “It's going to make it tough for a guy like me to get around with clients.”
Ms. John, who also serves as president of Financial Focus Inc. in Wolfeboro, N.H., said it's important not to jump to conclusions regarding the investigation of Mr. Spangler.
“All we know is that there's a complaint and that it's being investigated,” she said. “You can't throw someone who's an industry leader under the bus without concrete facts.”
Mr. Spangler's firm, which had managed $106 million, according to the Form ADV filed in March, went into receivership in June, according to court documents filed with King County Superior Court in Washington state.
A group of clients, seeking to subject the adviser to examination by their attorneys in relation to the receivership, are claiming that Mr. Spangler had violated his fiduciary duties by investing their money in the privately held startups.
An affidavit by FBI Special Agent Spencer Walker alleged that Mr. Spangler had invested in “high-risk private companies” without his clients' consent and misled them into believing that their money was invested in funds holding publicly traded securities.
It also claimed that Mr. Spangler had a personal and business interest in at least two of the private companies: He was chairman of technology company Tamarac Inc. and president of the now-defunct TeraHop Networks Inc.
According to Tamarac chief executive Stuart DePina, Mr. Spangler was asked to step down from the company's board earlier this year and had never been active with the outfit.
“We became aware of the fact that there might be something not right back in the February time frame,” he said. “We removed him from the organization."
Mr. Walker noted in his affidavit that the Securities and Exchange Commission is conducting a parallel civil investigation of Mr. Spangler.
"We have no further comment at this time, as the matter remains under investigation," said Mr. Spangler's attorney Ronald J. Friedman of Lane Powell PC. The SEC declined to confirm whether the investigation has been completed.
Clients lost more than $50 million when one of the companies in which Mr. Spangler allegedly invested, TeraHop, closed down, according to court documents.
"We have no further comment at this time, as the matter remains under investigation," said Mr. Spangler's attorney Ronald J. Friedman of Lane Powell PC.
(Davis D. Janowski contributed reporting to this story.)
