Bus Stop, Wet Day, We Say, Stay Away From That Umbrella: Ponzi Scheme Targets Bus Drivers, SEC Alleges

A Los Angeles-based investment advisory firm and its principal were running a $14.7 million Ponzi scheme targeting retired Los Angeles bus drivers, the Securities and Exchange Commission alleged today. The SEC contended 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.). According to the SEC, many of MPW's clients are recently retired bus drivers from the Los Angeles County Metropolitan Transit Authority who were referred to the firm by former co-workers. The SEC alleges that 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, according to the SEC. 

A federal district court in California 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 percent 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 a letter to one client dated June 1, 2008, and signed by Mitchell, he stated that MPW had "been privileged to assist a number of LACMTA retirees with establishing retirement plans…" The letter further touts MPW's association with a number of well-known financial institutions, and concludes by advising the client to open an IRA rollover account as a first step.
 
The SEC alleges that:  instead of making the promised investments, Mitchell used new investor money to make interest payments due to existing investors based upon their promissory notes. Moreover, Mitchell has diverted approximately 20 percent 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.