Federal prosecutors and the Securities and Exchange Commission respectively secured a guilty plea and the partial settlement of multimillion-dollar fraud cases against ex-financial advisors.
In one case, Joseph Michael "Mike" Todd defrauded at least 20 clients — many of them older adults and people with disabilities — for $3 million worth of purported investments that he instead spent on real estate, boating, hunting, casinos and adult entertainment, according to the SEC's July 12
In the other, Rao K. Garuda of a Cleveland-area firm called Associated Concepts Agency
One of the cases highlights how financial exploitation of older Americans
"I would say it's as bad today as I've ever seen it. The scamsters are very good. They're very smart," Schulz said in an interview. "It's rampant, and the regulators — you can't rely on them."
Todd of Crystal River, Florida-based Todd Financial Services and TFS Insurance Services didn't respond to an email to his personal account. In January, he filed a pending action for a type of bankruptcy protection for the distribution and liquidation of assets called an "assignment for benefit of creditors," according to the SEC. Anaheim, California-based Centaurus Financial, the brokerage firm that employed him from 2016 until his 2022 termination citing an investigation into possible violations of company and industry rules, didn't respond to an email inquiry, either.
"The investments made through my broker/dealer were suitable and were recommended based on the customer's objectives, goals and financial circumstances and were offered only after their review of all material documentation related to the investment," Todd said in response to one customer arbitration listed on
'There is no tax'
The attorney representing Garuda didn't respond to an email seeking comment on the case. A registered investment advisory firm that employed him from 2015 to 2022, Beachwood, Ohio-based Associated Investment Advisors, didn't respond to a phone message.
From 2013 to 2020, Garuda and other conspirators recommended that clients transfer assets to a limited liability corporation, assign 100% ownership of the LLC to charities such as one they called Compassion Beyond Borders and claim a tax deduction for charitable contributions, according to investigators. The clients could then gain access to the assets by getting phony "tax-free loans," prosecutors said.
Several attorneys consulted by the clients warned them and Garuda that they were on shaky legal ground, including one who wrote in a 2017 email that the idea was "clearly fraudulent and will not withstand scrutiny from the IRS," court papers showed.
"You are borrowing money from your own LLC. When you borrow money, there is no tax," Garuda explained in one conference call with a client and another planner, according to his charging document. "So when you put money in, you get a deduction, when the money grows, there's no tax and then when you borrow money, there is no tax."
Garuda's plea agreement remains sealed, and his judge freed him after his arrest on a $25,000 bond, court records showed. His charges carry up to five years in prison for conspiracy and another three for the false tax return. The judge scheduled his sentencing for November.
Boats and adult entertainment
Between August 2016 to November 2022, Todd convinced clients to place millions of dollars outside of the brokerage in imaginary instruments such as the "CRTFS Mortgage Fund" or real securities or funds without ever investing the money, according to the SEC. He used false account statements to lead the investors into thinking they were generating yields and, in at least one instance, Ponzi-like payments from other clients' money, investigators said. Instead, Todd wrote $568,000 worth of checks to himself and spent $450,000 on boats, $275,000 on farm equipment, $230,000 on a condo, $65,600 on hunting gear and expenses and $11,000 on casinos and strip clubs, among other personal uses, according to the SEC.
"As Todd's customers began confronting him with more and more questions about what he had done with their funds, Todd eventually stopped responding to their calls and messages altogether," according to the SEC's complaint. "Several of the customers who wrote checks to Todd or Todd's LLCs now find themselves listed as "unsecured creditors" on Todd's pending action for the benefit of creditors, despite never having agreed to serve as any type of creditor for Todd or his entities. Todd violated the trust of the defrauded customers when he used their funds to bankroll his lifestyle."
It's not immediately clear whether Todd will face criminal charges in addition to the SEC's case. FINRA suspended him in April for not paying
Todd's financial straits display another common theme in fraud cases on the difficulty for victims to recover damages, according to Schulz.
"They don't just fleece one person, they take down a bunch," Schulz said. "You catch them, and they don't have any money. The net result is horrible. Yes, you can try to sue the advisory firm and the brokerage firm and we win maybe half those cases. But we don't win them all because the argument is, 'Well the broker hid it from us, too.'"
