Ex- NAPFA Chairman Indicted by Grand Jury and Sued by SEC For Allegedly Diverting $47.7M of Investors’ Funds Into His Own Start-Ups

The Securities and Exchange Commission has filed a civil lawsuit against former National Association of Personal Financial Advisors Mark Spangler for allegedly bilking clients by secretly investing $47.7 million of their money in two start-ups that he co-founded. These were risker investments than if he had kept their money in the mostly publicly traded securities, which is where he told clients their funds were going. The investment strategy that he actually employed allegedly was not in line with their investment goals and they ended up losing millions.

Also going after Spangler is the government. A federal grand jury just Spangler indicted him over these allegations. He now faces 23 criminal counts, which include charges of fraud and money laundering. U.S. Attorney Jenny Durkan said the government was working closely with the SEC to make sure that he was held accountable.

Per the SEC’s complaint, starting around 2003 through 2011, Spangler and his advisory firm The Spangler Group (TSG) started putting most of their clients’ money, which had been in the private investment funds that he managed, into two private technology companies. He did not notify investors of this move.

Spangler’s clients had told him they were unwilling to take huge risks with their investments. Yet the private placements that Spangler is accused of putting investors’ money into without their knowledge or consent are usually more suitable for sophisticated, rich investors, who can afford to suffer huge losses.

Of the $47.7 million of clients’ funds that he’d invested in the start-ups, nearly $42 million was placed in one of the companies, which eventually closed its doors in March 2011. Last summer, when Spangler’s private funds could not meet requests for redemption, the TSG, the private funds and the company that is now defunct began receivership proceedings.

The Commission also claims that Spangler failed to tell clients that TSG received $830,000 in fees for “financial and operational support” from the companies. These fees were coming from the investors’ money that was being diverted into the start-ups. Meantime, Spangler and his advisory firm were also earning TSG management fees from clients. However, the investors were unaware that any financial “double-dipping” was occurring or that Spangler and TSG had a conflict of interest. (Yet according to The New York Times, while serving as the head of the National Association of Personal Financial Advisors, Spangler had pressed the group to implement a policy requiring its members to reveal any conflicts of interest and make the clients’ best interests a priority.)

The SEC is charging TSG and Spangler with violating the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The relevant entities involved in this matter are The Spangler Private Funds, Equity Investors Group, LLC, Long/Short Equity Investors Group, LLC, Income+ Investors Group, LLC. , Spangler Ventures Seven, LLC, Spangler Ventures Nine, LLC, Spangler Ventures Eleven, LP, and TeraHop Networks Inc., and Tamara Inc. The latter two are the start-ups that he co-founded. The Commission is seeking injunctive relief, financial penalties, and disgorgement plus prejudgment interest.

Our securities lawyers represent investors that have suffered financial losses because of broker and investment adviser misconduct. Your first case evaluation with Shepherd Smith Edwards and Kantas, LTD, LLP is free.

Read the SEC’s complaint (PDF)

A Risky Investment, Made Unwittingly, New York Times, October 21, 2011
Fraud charges for former financial advisory chief, Reuters, May 17, 2012

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