A well-known investment adviser, Mark F. Spangler (“Spangler”), was convicted by a federal jury of 32 criminal counts of wire fraud, money laundering and investment advisor fraud. He defrauded friends and family by diverting their investments into two-risky startup companies. U.S. Attorney Mark Durkan stated, “This defendant used his position of trust as a tool to cheat his clients out of money for their mortgages, their children and grandchildren’s education, their retirement and plans for charitable giving.”
Spangler’s illicit activity was uncovered after a FBI raid of his house in September 2011. While investors faced insurmountable losses, Spangler used their money to investment in startup companies and to live a life of luxury. At trial the evidence and witness testimony established that Spangler repeatedly violated his fiduciary duty as an investment adviser by misleading investors about where their money was invested. Spangler supplied investors with false quarterly statements with inflated values for their accounts. He told clients that their assets were valued at $73 million; however the actual value recovered was approximately $28 million. By falsifying account statements to clients, investors suffered a substantial loss of $45 million.
In certain situations, when an investor requested to liquidate accounts, Spangler paid out these investors with capital raised by new investors. The Ponzi scheme began to unravel as the private fund was unable to satisfy redemption requests. Eventually, the Spangler Group filed for receivership proceedings. Receivership occurs when a company cannot meet its financial obligations or enters into bankruptcy. The filing for receivership in state court by the Spangler Group was a red flag for the SEC and the U.S. Attorney’s Office.
While the SEC civil case was placed on hold pending the criminal proceedings, a SEC spokesperson stated that they will recommence their case. In 2012, the SEC filed a civil complaint against Spangler and the Spangler Group for defrauding clients from 2003 through 2011. Spangler was charged with defrauding clients by secretly investing their money into two startup companies. He allegedly advised clients that their funds would be invested in publically traded securities, but in actuality Spangler funneled approximately $47.7 million of client investment into two private companies. In addition, from 2005 until 2011, Spangler Group received $830,000.00 in fees for financial and operational support. Not only did the Spangler Group failed to disclose the additional fees to clients, but also the strategy employed by Spangler was inconsistent with the investment objectives promised to clients.
The SEC’s complaint charges Spangler and the Spangler Group with violating provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. Under the Advisers Act, any investor adviser must not engage in or employ any device, scheme, or artifice to defraud a client or prospective client. If the SEC determines that Spangler and the Spangler Group violated the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 by breaching its fiduciary duty to their clients, the Commission will require them to disgorge ill-gotten gains and pay civil penalties.
By: Shazia Ahmad