More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
I’m having a very hard time, as I suspect many other folks are in the independent advisory community, getting my brain around the recent charges brought by the SEC against Mark Spangler. As AdvisorOne’s Melanie Waddell reported on May 18, the long-time Seattle financial planner and former NAPFA chairman has been charged with defrauding his clients out of $47.7 million in two private deals. The Justice Department has filed related criminal charges as well. Even though I’ve known about this since last October, when the FBI’s investigation into the matter was announced, I’m still in a state of shock and disbelief.
In part, I suppose, it’s an occupational hazard of those of us who cover our little corner of financial journalism: we can’t help but have some favorites among independent advisors. In fairness, we don’t so much cover independent advisors; we mostly cover the financial services industry for advisors. And while we do write the occasional practice profile, it’s not as if we’re doing, as a rule, hard-core investigative journalism to vet the information we’re given. So like parents who love all their children equally but some more than others, we all have advisors whom we respect a little more, without any hard evidence to support it—and Mark Spangler has always been right near the top of my list.
Although I haven’t seen Mark in some years, I did get to know him quite well during the ‘80s and ‘90s, and to me, he always represented everything an independent advisor should be: he was scary smart, with a quick wit and a keen sense of humor, understood how the financial services industry really worked, and was clearly focused on taking care of his clients—and helping other advisors to take care of theirs. So what to make of the Grand Canyon between the guy I knew for years and the advisor whom the SEC contends “concealed his diversion of client funds for years” in what it called “a disturbing abuse of trust”?
As I said, I’m at a bit of a loss. But it does occur to me that a good first step might be to resist our current societal trend to publicly convict people first, based on our personal biases, and later—if at all—consider the actual facts of a case. Of course, it’s often difficult to weigh the facts of any case in a legal action before a trial, because the prosecution is free to cite the “facts” it picks and chooses to support its decision to pursue the case, while the defense is often reluctant to publicly reveal its side of the story prematurely. So, initially, almost everyone appears “guilty.”
Plus, many of us often make the presumption that “where there’s smoke, there’s fire,” meaning that if there were no case, the SEC and Justice wouldn’t have filed a case. Rationally, we know this isn’t true. There are myriad reasons why cases get filed, including politics, the desire to get headlines, the likelihood of getting a conviction or a plea bargain and collecting fines. Remember the recent SEC case against Goldman Sachs, in which it contended Goldman took advantage of the most sophisticated mortgage investment fund in the world? Goldman settled.
What’s more, as investment advisors know all too well (and the Goldman case illustrates), even the most sophisticated investors aren’t above crying “foul” after experiencing investment losses, even when their claims are unsupported by the facts. In the Spangler case, the SEC claims investors lost nearly $50 million—a sum that has to make plaintiff attorneys salivate—and dig for some basis on which to file a claim. If they can get the government involved, all the better.
For the SEC’s part, is it just me, or does it seem as if the Commission has stepped up its enforcement actions against RIAs since Dodd-Frank mandated a regulation of financial advisors?
I don’t know whether Mark Spangler did what the government claims he did. It certainly wouldn’t be the first time that a top officer of a financial planning organization got into trouble over creating private deals for their clients (which raises serious issues over the business risk of such dealings, but that’s another story). But I do know that the SEC’s claims contradict everything I’ve come to know about the man.
You’ll have to make up your own mind, but I’ll continue to believe in the guy I know, until all the facts come out—and maybe even after that.