SEC charges fund manager with defrauding clients

In a news release by the U.S. Securities and Exchange Comission, the agency stated that they charged a Seattle-based investment adviser, Mark Spangler, and his firm with defrauding clients by secretly diverting client funds into his own start-up companies.

The SEC alleges that Spangler, former chairman of NAPFA, invested close to $48 million of client money into two risky start-up companies he co-founded despite representing that he would invest primarily in publicly-traded securities.  Spangler was both chairman and CEO of one of the companies, which has since gone bankrupt.  The risky investments Spangler made were inconsistent with his promises to his clients and went against their investment objectives.

According to the U.S. Attorney’s Office for the Western District of Washington, “Spangler assured his clients he was investing them in publicly-traded equities and bonds, not risky start-ups in which he had a personal interest,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “For an investment adviser to put his self-interest above the best interests of his clients is a disturbing abuse of trust.”

According to the SEC complaint, Spangler raised more than $56 million from his clients since 1998.  Starting around 2003, Spangler and his advisory firm, The Spangler Group, began diverting large amounts of client money into two private technology companies he created.  One of the companies received over $40 million of the investment money before shutting down operations.  Before the company shut down, it had been a cash-poor company with a history of net losses.  Despite the losses, Spangler treated the funds as the company’s bank.

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.

To view the full SEC Complaint, visit the U.S. Securities and Exchange Commission website.