SEC Charges L.A. Investment Firm for Ponzi Scheme against Retirees

The Securities and Exchange Commission (SEC) has filed fraud charges against a Los Angeles-based investment advisory firm and its principal for an alleged $14.7-million Ponzi scheme targeting retired bus drivers.
The SEC also obtained an emergency court order to halt the scheme.

The SEC alleges that Thomas L. Mitchell and his firm, Mitchell, Porter & Williams, Inc. (MPW), solicited clients to invest their retirement money in promissory notes offered by two other entities he operates: Adivanala AA Investment Trust and AB3, Inc. Many of MPW’s clients are recently retired bus drivers from the Los Angeles County Metropolitan Transit Authority (MTA), who were referred to the firm by former co-workers.

The SEC said Mitchell met with the prospective clients and encouraged them to take their retirement pensions as a lump-sum payment rather than a monthly annuity, and give him the money to manage for them. Rather than investing the money into stock, bonds, or real estate as promised, Mitchell instead orchestrated a Ponzi scheme in which money from new investors was used to pay interest to existing investors.

The U.S. District Court for the Central District of California on March 3 granted the SEC’s request for a temporary restraining order and asset freeze against Mitchell and his companies.

According to the SEC’s complaint, Mitchell raised funds from 82 clients in the fraudulent promissory note offering, and he promised investors fixed interest returns ranging from 10% to 15% annually for three or six-year terms. Mitchell made various claims to investors as to how he could generate such large returns, including investing in stocks, bonds, and real estate.

In addition to using new investor money to make interest payments due to existing investors based upon their promissory notes, the SEC alleges Mitchell has diverted approximately 20% of new investor money for himself in the form of “operating expenses” and used it to fund his luxury car payments, mortgage payments, payments for a cruise, and tickets to sporting events.