The Swarthmore Group, a Philadelphia stock and bond investment company that once counted the state, city and SEPTA pension plans among its fee-paying customers, has filed for bankruptcy five weeks after closing its doors and demanding millions from managers they are owed .
Records filed with Swarthmore’s Chapter 7 petition in federal bankruptcy court in Philadelphia show that the company’s revenue fell to $1 million in the first seven months of 2022, compared to around $4 million in the year 2020 and again in 2021.
In June, the company, founded and run by James E. Nevels, gave two weeks notice to employees and customers that it was closing its doors, returning investors’ money and employees were looking for work elsewhere.
A lawyer for Nevels did not respond to inquiries about bankruptcy.
As of March 30, Swarthmore had $1.5 billion under management, 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 used to dominate the money management business, are many times higher than the index fund fees now charged for stock and bond accounts with big managers like Malvern. resident Vanguard Group.
Philadelphia International Airport, the Delaware River Port Authority, the Pennsylvania Judges’ Pension Fund and other government agencies have been among Swarthmore’s clients in recent months, attesting to the firm’s continued popularity with government decision-makers.
“We’re a company that’s fighting above its weight,” Glenn E. Becker, Swarthmore’s then president, told the Inquirer in 2014. It’s part of our DNA.”
Becker was appointed by the then-government to chair Pennsylvania’s $40 billion state worker pension fund, SERS. Tom Corbett in 2013. He left Swarthmore in 2019 and now runs his own investment business while chairing the investment committee of SERS.
Before such donations were effectively banned, Swarthmore employees became involved in the campaigns of State Treasurers Barbara Hafer and Rob McCord, both of whom later pleaded guilty to corruption charges involving other private companies seeking state business.
Nevels, a University of Pennsylvania Law School graduate, was also a past chairman of Hershey Co., the Federal Reserve Bank of Philadelphia, the Federal Pension Benefit Guaranty Agency, and the former state-controlled school boards in the Philadelphia and Chester-Upland public school districts.
The filing with the U.S. Bankruptcy Court for Eastern Pennsylvania showed $852,000 in Swarthmore assets — more than half in office equipment, computers and furniture, plus $123,000 in cash and $166,000 in uncollected fees or Debt, principally from the City of Philadelphia and its investment entities.
It also showed $1.3 million in claims against creditors, including its former CEO and chief compliance officer Paula Mandle, who loaned the company $582,000, and Becker, who loaned it $61,000, according to the filing would have.
The filing shows that Swarthmore owes $22,000 in advisory fees to John H. Estey, a top aide to former Gov. Edward G. Rendell. Estey pleaded guilty to stealing bribes during a 2017 FBI investigation into corruption in Pennsylvania.
Swarthmore also owes money to his landlord at the high-rise tower at 1650 Arch St. in Philadelphia, as well as to software, accounting, consulting, hiring and data providers, among others.
The filing also lists several large payments Swarthmore made to “insiders” (board members and employees) over the past year: $150,000 to Nevels and $165,000 to Denise Caruso, the firm’s accountant since 2004, partly in October and partly in March; $35,000 to Becker in March; $197,000 to Mandle in nine installments from September through April; and $64,000 in November and May to former executive assistant Kelly Goff Davis.
The filing lists Nevels as the 66 percent 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 own smaller percentages.
Mero and Schweitzer sued Nevels and Swarthmore in New York state court after the June closure announcement, seeking at least $11 million each because Nevels failed to fulfill what they said was his promise to allow them to close company according to his plans to retire or sell the company so employees can keep their jobs.