Like many of the advisors who know him, I’ve been following the trial and sentencing of Seattle financial advisor Mark Spangler with much sadness—and more than a little horror. I’ve been reading about the Spangler case since it was first reported some 20 months ago and, honestly, I still don’t know what to say about it, except for this: the Mark Spangler described by the federal prosecutor sure isn’t the Mark Spangler I know. 

For those who haven’t been following the case, the former NAPFA chairman was sentenced last Thursday to serve 16 years in federal prison, following his conviction on 32 criminal counts, including wire fraud, money laundering and investment advisor fraud. The charges, according to the SEC’s complaint, stemmed from nearly $50 million of client assets in “several private investment funds” managed by Spangler. Those funds were invested primarily in two companies: Tamarac (the client account platform that was purchased by Envestnet in 2012 for $54 million), and Terahop Networks (a website that went bankrupt in 2012, but Google subsequently paid $10 million for its patents).

Now you might think that totals up to a fair return for the investors, but apparently, the clients’ $47.7 million only bought them modest interests in the companies: the court-appointed receiver has been able to recoup some $26 million for the investors, and Spangler was ordered by the court to make restitution of the remaining millions.

Why, you might ask, would Spangler face criminal charges for batting 1 for 2 in tech startups? For one thing, Spangler allegedly owned interests in, and served as CEO for a time, of both companies. To make matters worse, the federal prosecutors charged that unbeknown to the clients, his advisory firm—The Spangler Group—also collected management fees and payments for “financial and operational support” from the startups. “Spangler and his firm secretly reaped $830,000 from the companies in addition to any management fees that TSG received from clients,” states the SEC’s May 17, 2012 release.

The bulk of the government’s charges against Spangler were based on his clients’ assertions that they didn’t know their investments were going into startups in the first place. “Spangler assured his clients he was investing them in publicly traded equities and bonds, not risky startups in which he had a personal interest,” Marc Fagel, director of the SEC’s San Francisco regional office, said in the release, which went on: “Beginning around 2003, without notifying investors in the funds, Spangler and his advisory firm began diverting the majority of client money into two private technology companies he created. The SEC alleges that Spangler…funneled approximately $47.7 million of client money into these private ventures… …Such risky investments were inconsistent with the investment strategies that Spangler promised his clients and contrary to their investment objectives…”

The jury and Judge Ricardo Martinez apparently agreed, resulting in a sentence that would keep Mark Spangler locked up until he’s 75 years old. How’s the financial planning community to process something like this? Did Mark really “divert” client funds into risky investments without their knowledge?

It’s hard for me to believe. I wouldn’t say that he is a close personal friend, but I like Mark, and saw him at advisor conferences many times a year for many years. We talked often, frequently attended the same dinners and receptions and late-night bull sessions. He openly talked about the startup ventures that he and his clients invested in, how they frequently acted as a group—with his clients bringing up investment and charitable opportunities for collective consideration. His relationship with his clients was more like a partnership than the typical advisor/client relationship. He never seemed like a guy who was trying to hide something. But I guess you never really know.

 I do know that clients don’t like to lose money—and wealthy clients seem to like it even less—and that prosecutors, once they decide to file charges, can be quite aggressive about painting a defendant as a “bad guy.” (In the same way that we should take defense attorneys’ protestations of their clients’ innocence with a grain of salt.)

I also know that some very successful, prominent independent advisors structure company acquisitions and other private deals for their clients—they can be very lucrative and a big attraction for HNW clients. But as the Spangler case illustrates, if these deals aren’t structured with the advisor clearly on their clients’ side—and only on their clients’ side—there’s a very big downside.

That’s why advisors are usually much better off managing investment managers than managing investments. The financial services industry already has enough conflicts: clients don’t need advisors creating any more.