According to numerous articles, former NAPFA Chairman Mark Spangler has been sentenced to 16 years in prison for defrauding clients. In addition, Spangler was ordered to serve three years of supervised release and pay $19.8 million in restitution.
The Spangler Group moved $46 million of client assets into Terahop Networks and Tamarac through a fund it managed. Mr. Spangler was a founder of Terahop which was a failed manufacturer of wireless devices. Mr. Spangler was also a co-founder of the more successful Tamarac. The firm did not disclose the nature of the investments, instead saying the fund invested in publicly traded securities and sending phony account states showing profits. In a classic Ponzie move, Spangler then used other investor assets to pay for withdrawing clients until there was no money left to move.
This is another example of the additional risk associated with firms with custody, especially those that don’t allow for client transparency. This fraud would have been more difficult or impossible in the case of an adviser managing assets held in clients’ names at a qualified custodian.