Swarthmore Group files for bankruptcy liquidation after surprise closure

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The Swarthmore Group, a Philadelphia stock and bond investment firm that once counted the state, city and SEPTA pension plans among its paying clients, filed for bankruptcy, five weeks after having closed its doors and left managers demanding millions, they say they are owed.

Filings filed in federal bankruptcy court Aug. 4 in Philadelphia with Swarthmore’s Chapter 7 petition show the company’s revenue fell to $1 million in the first seven months of 2022 from about $4 million. dollars in calendar years 2020 and 2021.

In June, the company, founded and run by James E. Nevels, gave employees and customers two weeks’ notice that it was closing, returning investor money and quitting staff to seek work. somewhere else.

A lawyer for Nevels did not respond to inquiries about the bankruptcy.

As of March 30, Swarthmore had managed $1.5 billion, including about $400 million in stocks and the rest in bonds. It charged fees ranging from 0.25% of bonds purchased for clients to around 1% of the value of client stocks, with discounts for larger clients.

These fees, once common for the “active” stock and bond pickers who dominated the money management industry, are many times higher than the index fund fees now charged for stock and bond accounts. of bonds at large managers such as Malvern-based Vanguard Group.

Philadelphia International Airport, the Delaware River Port Authority, the Pennsylvania Judges’ Pension Fund and other government agencies were among Swarthmore’s clients in the company’s final months, attesting to the company’s enduring popularity. enterprise among decision-makers in public agencies.

“We’re a company that punches above its weight,” Glenn E. Becker, then president of Swarthmore, told The Inquirer in 2014. “We have people who are very dedicated to public service and who want to be involved in these things. It’s part of our DNA.

Becker was named chairman of the $40 billion Pennsylvania state workers’ pension fund, SERS, by then-Gov. Tom Corbett in 2013. He left Swarthmore in 2019 and now runs his own investment firm, while heading the investment committee of SERS.

Before such contributions were effectively banned, Swarthmore employees contributed to the campaigns of state treasurers Barbara Hafer and Rob McCord, who each later pleaded guilty to corruption charges involving other private companies seeking of state affairs.

Nevels, a graduate of the University of Pennsylvania Law School, had also served as chairman of Hershey Co., the Federal Reserve Bank of Philadelphia, the Federal Pension Benefit Guaranty Agency and former state-controlled school boards in Philadelphia and Chester-Upland. School districts.

The U.S. bankruptcy court filing for eastern Pennsylvania showed Swarthmore’s assets were worth $852,000 – more than half in office equipment, computers and furniture, plus $123,000 in cash and $166,000 in uncollected charges or debts, primarily from the City of Philadelphia and its investment units.

He also showed claims of $1.3 million to creditors, including his former CEO and chief compliance officer Paula Mandle, who loaned the company $582,000, and Becker, who loaned him $61,000. depending on the file.

The filing says Swarthmore owes $22,000 in consulting fees to John H. Estey, a top aide to former Governor Edward G. Rendell. Estey pleaded guilty to stealing bribes during an FBI corruption investigation in Pennsylvania in 2017.

Swarthmore also owes money to its owner of the high-rise tower at 1650 Arch St. in Philadelphia, as well as software, accounting, consulting, hiring, and data vendors, among others.

The filing also lists several large payments Swarthmore made to “insiders” (board members and staff) over the past year: $150,000 to Nevels and $165,000 to Denise Caruso, the accountant of company since 2004, paid partly in October and partly in March; $35,000 to Becker in March; $197,000 to Mandle, in nine installments from September to April; and $64,000, in November and May, to former executive assistant Kelly Goff Davis.

In the filing, Nevels is listed as 66% owner of the company. Caruso owns 13%. Three other employees – Scott Mero, Steven Schweitzer and Jocelin Reed – each own about 3.5%, and other former employees or directors hold smaller percentages.

Mero and Schweitzer sued Nevels and Swarthmore in New York state court after the shutdown was announced in June, demanding at least $11 million each for Nevels’ breach of what they say is his promises to allow them to succeed him in running the business after his project. retire or sell the business so employees can keep their jobs.

“The company had the customers and the revenue base to continue to operate profitably,” said Jonathan Davidoff, attorney for Mero and Schweitzer. “There were a lot of current clients and potential clients on the horizon.”

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