Former NAPFA chairman Mark Spangler was indicted by a Seattle grand jury Thursday, charged criminally with diverting $41.7 million from investors into risky start-up ventures in which he had an ownership stake.
The 23-count indictment (see below) was handed down just after the Securities and Exchange Commission filed a civil complaint against Spangler.
“These investors lost millions to a man they trusted to safeguard their resources,” said,” said Jenny A. Durkan, U.S. Attorney for the Western District of Washington. “We are working closely with the SEC to ensure Mr. Spangler is held accountable for his fraud.”
Emily Langlie, a spokesman for the U.S. Attorney in Seattle, said the charges — if Spangler is found guilty — could result in a sentence of up to 20 years in jail.
Spangler, from 1996 to 1998, was chairman of the National Association of Personal Financial Advisors, an association of fee-only advisors that has long championed investor protection and in recent years been a vocal backer of the movement to require all advisors be bound by the fiduciary standard under the the Investment Advisers Act of 1940. The second paragraph of the SEC press release poignantly noted Spangler’s former position with the NAPFA.
The Spangler investigation first came to light publicly last September, after the FBI sought and was granted a search warrant to conduct a surprise raid on Spangler’s home, reportedly seizing documents and electronic files.
Thursday's indictment refers to six unnamed investors whose funds were allegedly diverted by Spangler to two ventures, TeraHop Networks and Tamarac Inc. TeraHop, a wireless device maker, ceased operations in April 2011, according to the indictment and was put into receivership by Spangler last September. Tamarac, a rebalancing software application, was sold to Envestnet, a turnkey asset management provider, in a deal that closed earlier this month, for $54 million.
The federal indictment charges that Spangler not only diverted clients’ money without their knowledge to the two privately held companies but also that Spangler charged the two companies more than $1.1 million between 2005 and 2011 for his services. Tamarac executives in the past have said the fraud case would not affect Tamarac’s operations.
NAPFA members have asserted that Spangler had stopped being active in the association shortly after he served as its leader and was no longer a full member of the group. But the scandal has been a public relations nightmare for the association as it has been campaigning against the creation of a self-regulatory organization that would be run by FINRA.
Moreover, Spangler was the second former NAPFA chairman to face fraud charges. Former NAPFA president James Putman, an advisor in Appleton, Wisconsin, was charged civilly by the SEC in May 2009 with accepting $1.24 million in kickbacks derived from investments made by unregistered investment pools, and with breaching his fiduciary duty and fraud by misrepresenting the safety and stability of his clients’ investments. A federal court on April 24 awarded summary judgment to the SEC against Putman and he’s been ordered to pay $1.53 million in disgorgement and $130,000 in civil penalties.
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