The Securities and Exchange Commission has charged a Seattle-based financial adviser and his firm with defrauding clients by secretly investing their money in two risky start-up companies he co-founded.
The SEC alleges that Mark Spangler, a former chairman of the National Association of Personal Financial Advisors, funnelled approximately USD47.7 million of client money into these private ventures despite representing that he would invest primarily in publicly traded securities. Spangler served as chairman and CEO of one of the companies, which is now bankrupt. Such risky investments were inconsistent with the investment strategies that Spangler promised his clients and contrary to their investment objectives.
The US Attorney’s Office for the Western District of Washington also announced parallel criminal charges against Spangler.
According to the SEC’s complaint filed in federal court in Seattle, Spangler raised more than USD56 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 USD42 million from the funds before shutting down operations. It had long been a cash-poor company with a history of net losses, generating less than USD100,000 in revenue during its 11-year history. Yet Spangler continued to treat the funds as the company’s piggy bank.
The SEC alleges that Spangler also 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. Therefore, Spangler and his firm secretly reaped USD830,000 from the companies in addition to any management fees that TSG received from clients.
According to the SEC’s complaint, 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.
The SEC’s complaint charges Spangler and TSG with violating, among other things, the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The complaint seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.
The SEC’s investigation was conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office with assistance from Michael Tomars, Peter Bloom, and Christine Pelham of the investment adviser/investment company examination program. Robert L Tashjian will lead the SEC’s litigation.
The SEC thanks the US Attorney’s Office for the Western District of Washington, the Federal Bureau of Investigation, and the Internal Revenue Service for their assistance in this matter.