|Former NAPFA Chairman Mark Spangler's Home Raided By FBI In Criminal Fraud Investigation|
|Friday, October 14, 2011 19:23|
FBI Agents raided Seattle financial advisor Mark Spangler’s home on Sept. 23, reportedly seizing documents and electronic files in a criminal fraud investigation into whether Spangler illicitly diverted client money that was supposed to be invested liquid securities of publicly-held companies into illiquid, unsuccessful private technology ventures owned by Spangler.
Among the companies Spangler is alleged to have funded illicitly with client money is Tamarac Inc. Tamarac is a web-based rebalancing application integrated with Schwab PortfolioCenter and Microsoft Dynamics CRM and, while relatively expensive, it has been praised by advisors.
Spangler has not been charged with any wrongdoing. Spangler's office phone in Seattle was not working and he could not be reached for comment.
A damning 60-page affidavit filed in U.S. District Court in Seattle on September 23 reveals that Spangler, 56, has been under federal investigation since February 2011, after Spangler told clients that their money had been diverted into Spangler’s technology companies. In June, Spangler’s RIA and numerous technology companies he controls filed for bankruptcy.
According to a newspaper report, a court-appointed attorney has been in charge of selling Spangler’s assets, including a 64-foot yacht valued at $850,000, and a $1.3 million house in Seattle’s Portage Bay neighborhood.
Spangler’s RIA, The Spangler Group, in its Form ADV filed last March reported $106 million of assets under management, but an FBI agent’s affidavit filed September 23 in U.S. District Court in Seattle reported that only between $20 million and $60 million was :recoverable,” thus leaving Spangler’s approximately 100 clients with losses of $60 million to $80 million.
According to the affidavit, Spangler’s clients invested in limited liability companies created by Spangler in the 1990s that had a goal of investing for income and that would invest in publicly held companies, mutual funds, or municipal bonds. The affidavit says Spangler changed the operating agreement of the private placements in May 2008 to permit him to invest in his private tech companies without telling clients about the changes in the LLC’s terms.
According to the affidavit, Tamarac, reportedly used by about 450 RIAs, was funded with more than $5 million between 2003 and 2008. FBI agent Spencer Walker’s affidavit also contains information be obtained by several clients of Spangler’s RIA alleging they never authorized Spangler to invest their assets heavily in Spangler’s private tech ventures. The affidavit alleges that Spangler began diverting funds to Tamarac without disclosing it to investors in 2005.
In addition to alleging Spangler diverted client funds to Tamarac, the affidavit focuses on Spangler’s funding of TeraHop, wireless communications company, which was shuttered earlier this year.
In alleging that Spangler’s business activities were “permeated with fraud,” the affidavit alleges a raid and search of Spangler’s home was necessary because Spangler might otherwise destroy evidence at his home office.
Spangler served as president and then chairman of the National Association of Personal Financial Advisors from 1996 to 1998 and was an outspoken leader of the fee-only financial advisor movement. Spangler led a memorable but failed effort to enforce a trademark on use of the term “fee-only” by financial advisors.
Spangler is the second former-NAPFA president facing criminal investigation. Former NAPFA president James Putman, an advisor in Appleton, Wisconsin, was charged civilly by the U.S. Securities and Exchange Commission May 2009 with accepting $1.24 million in kickbacks derived from investments made by unregistered investment pools.
NAPFA has long been a champion of consumer rights, advisor integrity, and applying the fiduciary standard to advisors. With two of its former leaders sullied by allegations they defrauded investors and another member facing jail time for misappropriating client funds, the group’s credibility as “a beacon for objective financial advisors” and “standard bearer of the profession” has been badly damaged.