In the F.B.I. agent’s affidavit, several of Mr. Spangler’s clients said that he had shown them documents saying
they were putting their money in funds that would invest in publicly traded (securities), but their money was
put into private companies.
Because these private (placements) carry the risk that all the principal will be lost, most advisers recommend
them only for their wealthiest (clients), whose financial lives will not be affected by the loss. Mr. Spangler’s
clients said in the affidavit that they told him they did not want to take any big risks with their money.
But even when clients agree to the risks, they need to look for red (flags) that the deal may not work or pay
the returns they expect.
Perhaps the biggest one here was that Mr. Spangler was (associated) with the companies in which he invested
clients’ money. Clients said they were not told that he was on the (board) of TeraHop Networks, the company
that went out of business, and Tamarac Inc., which provides software for financial advisers.
With any legitimate private placement, the person offering it will provide a memorandum that (discloses) how
the company is structured and how the promoters of the deal are paid. The memorandum should also lay out
how a person’s money will be (invested), what returns can be expected and what fees will be charged. Getting
a lawyer or certified public accountant to read through this is crucial.
“You have to remember that the emphasis is on disclosure and disclosure only,” said Gerald Townsend, a
certified public accountant and president of Townsend Asset Management in Raleigh, N.C. “If they put on
Page 1 that ‘we’re crooks and we’re going to steal your money,’ they’ve (disclosed). If they have a good
securities attorney, they’re going to disclose things and hope you don’t read them.”