A former chairman of the National Association of Personal Financial Advisors took $47.7 million of client money and secretly invested it in two technology companies that he or his firm owned, according to a 23-count federal indictment announced last week.
Seattle investment adviser Mark Spangler, 57, was indicted by a federal grand jury Thursday on charges that include investment adviser fraud, wire fraud and money laundering, said Jenny Durkan, U.S. attorney for the Western District of Washington.
“The Department of Justice is making the prosecution of financial fraud a top priority,” she said. “These investors lost millions to a man they trusted to safeguard their resources.”
The Securities and Exchange Commission disclosed last week that it has filed a civil suit against Mr. Spangler.
He was chairman of NAPFA, whose members consider their fee-only model to be the gold standard for unbiased advice, from 1996 to 1998.
In a statement, the group called the charges “severe” and said the allegations against Mr. Spangler “have been deeply concerning.”
“NAPFA strongly condemns the actions contained in the FBI indictment and SEC complaint and any behavior that violates the public
trust,” the association said in a statement Friday. “In any organization, there are members or former members who act in unethical ways. Organizations like ours exist in part to set standards that promote ethical behavior.”
MEMBERSHIP SUSPENDED
The association suspended Mr. Spangler's inactive membership in October when the FBI investigation was launched.
In its civil complaint, the SEC said that Mr. Spangler told clients he would invest primarily in publicly traded securities, but instead used their money to fund two startup companies, one of which is now bankrupt.
“For an investment adviser to put his self-interest above the best interests of his clients is a disturbing abuse of trust,” said Marc Fagel, director of the SEC's San Francisco regional office.
In the indictment, six investors said that Mr. Spangler and his firm, The Spangler Group Inc., told them that their money was invested in publicly traded companies and in bonds.
Mr. Spangler is accused of providing them with misleading statements and being unable to pay back the investors when they asked to liquidate their holdings, the indictment said.
Between 2003 and last year, Mr. Spangler is accused of investing $42 million of his clients' money in TeraHop Networks Inc., a Georgia manufacturer of wireless devices that has ceased operations, and $5.7 million in Tamarac Inc., a Seattle firm that was recently acquired by Envestnet Inc. and is well-known among advisers for its
portfolio management software.
Mr. Spangler helped found Tamarac in 2000.
He was a member of the board from late 2002 to early 2011 but resigned after learning that a complaint was being filed by clients, Tamarac spokesman Matt Stroh said.
In a statement, Envestnet | Tamarac, as the firm is now known, said that Mr. Spangler never participated in the management of the company and no longer has any financial interest in the firm.
“Despite the disturbing news of Mr. Spangler's actions at the outset of Tamarac's founding, the firm has emerged as a successful venture,” the statement read.
Mr. Spangler's attorney, Jon Zulauf at Zulauf & Chambliss Law Offices, didn't return calls seeking comment.
SECOND PROBE
This is the second high-profile investigation of a former NAPFA officer. In 2009, the SEC charged James Putman, who served as NAPFA's president in 1996 and 1997, with accepting about $1.24 million in kickbacks related to unregistered investment pools.
The assets of his firm, Wealth Management LLC in Appleton, Wis., eventually were frozen, and the firm later went into receivership.
A federal court last month awarded the SEC a summary judgment against Putman. He has been ordered to pay $1.53 million in disgorgement and $130,000 in civil penalties.
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