Joseph Michael Todd of Panama City, Florida, formerly associated with Centaurus Financial, Inc., partially settled charges that through Todd Financial Services, defrauded at least twenty of his brokerage customers of at least $3 million, most of whom were senior citizens, retirees, or individuals with disabilities. Securities and Exchange Commission v. Joseph Michael Todd, et al., No. 5:23-cv-00431 (M.D. Fla. filed July 12, 2023).
According to the SEC’s complaint, Todd, while employed as a registered representative of Centaurus Financial he obtained investor funds through deceptive means by instructing his brokerage customers to write checks payable to TFS by falsely assuring customers that he and his entities would invest the customers’ funds in various securities.
Todd instead misappropriated investors’ funds and kept the money for his own personal use, spending it on real estate, boating, hunting, casinos, and adult entertainment. The complaint further alleges that, in order to conceal and continue his scheme, Todd presented defrauded customers with forged account statements or portfolio holdings statements that contained falsified entries indicating the customers were invested in the products promised by Todd.
Many of the victims of Todd’s scheme were seniors and/or disabled individuals, the complaint alleges. According to the complaint, Todd also made Ponzi-like payments to at least one customer by using other customers’ funds to make regular deposits from a TFS bank account into this customer’s account, which he falsely claimed were interest payments or regular distributions on an investment.
Centaurus Financial terminated Todd in July 2022, when supposedly it began investigating whether Todd violated Firm policy and industry rules with respect to an allegation of selling away and the receipt of customer funds.
Centaurus purportedly has more than 600 registered representatives operating from more than 370 geographically dispersed branch offices across the country. Without exception, these “affiliate” or “franchise” offices pay all their own administrative expenses in exchange for a higher commission pay-out. However, also without exception, there is no independent on-site supervision of these “independent” offices. As a result, since its inception, Centaurus has been subject to more than a dozen regulatory proceedings, and more than 100 customer initiated, investment related complaints, or arbitrations, concerning, most notably, the failure to supervise.
Courts and securities arbitration panels, in identical circumstances, have long held brokerage firms responsible for the conduct of their registered representatives in “selling away” cases based upon the broker-dealer’s failure to supervise. See, e.g., Hunt v. Miller, 908 F.2d 1210 (4th Cir. 1990); Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873 (7th Cir. 1992)(firm liable for agent’s selling away activities); Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990)(same); State Security Insurance Co. v. Burgos, 583 N.E.2d 547, 557 (Ill. 1991)(liability for firm where broker acted with apparent authority); Salmon v. New England Securities Corp., FINRA Arb. No. 01-06935 ($1.4 million award against member for associated persons “selling away” third party notes); Sleight v. Centaurus Financial, FINRA Arb. No. 10-00536; Brezden v. Associated Securities Corp., FINRA Arb. No. 07-03054 (reasoned award against member for failure to supervise agent’s selling away activties); Chandler v. FSC Corporation, NASD Arb. No. 05-0443, (reasoned award against member for failure to supervise agent’s unauthorized selling away); Battle v. Northeast Securities, Inc., NASD Arb. No. 06-04110, (same)(reasoned award); Dobison v. Josephthal, Lyons & Ross, Inc., NASD Arbitration No. 96-00963 (arbitration award against brokerage firm for broker’s selling away of unregistered notes and warrants). Securities regulators have also taken the same approach and routinely hold broker-dealers responsible for the “failure to supervise,” when their representatives engage in this outside activity. In Re DBCC (No. 5) v. Charles E. French, Complaint No. 5940026, May 18, 1995 (sanctions against member for selling away activity of broker); Siriani v. United States Securities & Exchange Commission, 677 F.2d 1284 (9th Cir. 1982); Stoiber v. Securities & Exchange Commission, 161 F.3d 745 (D.C. Cir. 1998).
As of even date, FINRA Public Disclosure shows that there are six pending, customer initiated investment related complaints or arbitration proceedings against Centaurus Financial involving Todd’s conduct and the alleged theft of customer funds. In April 2022, following the settlement of one such customer claim by Centaurus Financial, ostensibly for $500,000, a FINRA Arbitration Award was rendered against Todd. Medeiros v. Centaurus Financial, et al., FINRA Arbitration No. 22-01019.
