Wealth Matters: The Cautionary Tale of an Investment Adviser Gone Astray

At its height, the Spangler Group — which consisted of him and later his wife — supposedly managed $106 million. It collapsed in 2011 for the reason that all Ponzi schemes collapse — clients wanted their money back and he didn’t have it. But it had been coming undone for years, ever since Mr. Spangler, 58, started to fashion himself a venture capitalist, a role he was ill suited to.

He is now awaiting what could be a life sentence on charges of fraud, money-laundering and investment adviser fraud.

Mr. Spangler was convicted a month before a dreary holiday I proposed last year: Madoff Day — the anniversary of the collapse of Bernard L. Madoff’s Ponzi scheme on Dec. 10, 2008. As I suggested then, the day should be remembered to remind people why it is important to be as vigilant about assessing who manages their money as it is in evaluating a doctor.

Mr. Spangler’s Ponzi scheme started like any other. He ingratiated himself with a couple of wealthy groups — employees at Microsoft and Immunex, a biotechnology company now owned by Amgen — who referred their friends to him. He pitched the wealthier clients on private deals that would pay them a big return and him a high commission if they succeeded.

After a string of failures, he thought he had found two companies — TeraHop Networks, which made tracking devices, and Tamarac, a provider of software to financial advisers — that would make it big. For that to happen, they needed money, and he began diverting funds from the other accounts he managed to feed them. TeraHop struggled; Tamarac showed promise. But in 2010 clients began making withdrawals and he didn’t have the money to give them.

Mr. Spangler, who came from a well-known family in Seattle, began his career legitimately. He attended a prestigious Catholic prep school and the University of Washington. As his practice grew, he became the national chairman of the National Association of Personal Financial Advisers (Napfa), a group of fee-only advisers who commit to work in the best interests of their clients.

But by the early 2000s, he had become an advocate of private placements, risky, illiquid investments in little-known companies that promised a large return if they succeeded. Most of the ones Mr. Spangler picked failed.

“I remember him talking at a conference saying why he went away from publicly traded companies and into private partnerships because the returns were better,” said Nick Stuller, president and chief executive of Advice IQ, a company that evaluates advisers. “When I heard that, I said that is something really different, that’s very unusual.”

As Mr. Spangler’s failures mounted, he began dipping into the privately managed mutual funds — with names like Growth and Income — that he had for his more risk-averse clients. Those funds had been managed by outside advisers until 2003, when he decided to manage them himself. He told clients that this would save them on fees, but it really removed third-party oversight of his dealings. By the end, he had diverted the bulk of his clients’ money — some $43 million — to TeraHop, where he had become the chief executive, and Tamarac.

“He got bit by the venture capital bug,” said Mike Lang, an assistant United States attorney who was one of the prosecutors. “We’re in Seattle. Everyone is making money. He wanted a piece of that.”

Andrew Stoltmann, a Chicago securities lawyer, said what Mr. Spangler did happens more than people realize. “I can’t tell you how many brokers or investment advisers want to be hedge fund managers, mutual fund managers or investment bankers,” he said. “You see these guys doing this kind of stuff all the time — raising money for private companies or running their own mutual funds. Nine times out of 10 it ends disastrously with massive losses.”

Of course, there is a big a difference between getting clients’ consent to put money into private investments that might fail and doing it without their knowing.

When I first wrote about Mr. Spangler in 2011, shortly after federal agents seized his passport to keep him from fleeing to Ecuador with his wife, people who knew him were shocked.