Swarthmore Group seeks bankruptcy liquidation after surprise shutdown

The Swarthmore Group, a Philadelphia stock-and-bond investment company that once counted the state, city and SEPTA pension plans among its fee-paying clients, has filed for bankruptcy liquidation, five weeks after shutting its doors and leaving managers demanding millions they say they are owed.

Records submitted to federal bankruptcy court Aug. 4 in Philadelphia with Swarthmore’s Chapter 7 petition show the firm’s revenues had plunged to $1 million in the first seven months of 2022, down from about $4 million in calendar years 2020 and 2021.

In June, the firm, founded and run by James E. Nevels, gave employees and clients two weeks’ notice that it was closing its doors, sending back investors’ money, and leaving staff to seek work elsewhere.

A lawyer for Nevels didn’t 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 the bonds it bought for clients to about 1% of the value of clients’ stocks, with discounts for larger customers.

Those fees, once common for the “active” stock- and bond-pickers that used to dominate the money-management business, are many times higher than the index-fund fees now charged for stocks and bond accounts at large managers such as Malvern-based Vanguard Group.

Philadelphia International Airport, the Delaware River Port Authority, the pension fund for Pennsylvania judges, and other government agencies were among Swarthmore’s clients in the firm’s last months, attesting to the firm’s enduring popularity among public-agency decision-makers.

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

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

Before such contributions were effectively outlawed, 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 firms seeking state business.

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

The filing in U.S. Bankruptcy Court for Eastern Pennsylvania showed Swarthmore assets worth $852,000 — more than half in office equipment, computers and furniture, plus $123,000 in cash, and $166,000 in uncollected fees or debts, mostly from the City of Philadelphia and its investment units.

It also showed claims of $1.3 million to creditors including its former chief executive officer and chief compliance officer Paula Mandle, who loaned the company $582,000, and Becker, who lent it $61,000, according to the filing.

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

Swarthmore also owes money to its landlord at Philadelphia’s 1650 Arch St. high-rise tower, plus software, accounting, consulting, hiring and data vendors, among others.

The filing also listed several large payments Swarthmore has made to “insiders” (board members and staff) over the last year: $150,000 to Nevels, and $165,000 to Denise Caruso, the firm’s accountant 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 own smaller percentages.

Mero and Schweitzer sued Nevels and Swarthmore in New York state court after the shutdown announcement in June, demanding at least $11 million each for Nevels’ failure to honor what they say were his promises to allow them to succeed him in running the firm after his planned retirement, or to sell the firm so employees could keep their jobs.

“The company had the clients and revenue base to continue operating profitably,” said Jonathan Davidoff, a lawyer for Mero and Schweitzer. “There were plenty of ongoing clients and potential clients on the horizon.”