SEC claims investment firm took L.A. bus drivers for a ride

The Securities and Exchange Commission today announced that it has filed charges in an alleged $14.7 million Ponzi scheme, this one aimed at retired bus drivers in Los Angeles. The action comes just a day after the regulator said it had charged a Miami couple for operating a $135 million Ponzi operation targeting elderly Cuban-Americans. The latest SEC complaint, filed March 3 in United States District Court for the Central District of California, Western Division, alleges that Thomas L. Mitchell and his firm Mitchell Porter & Williams Inc., has been operating a Ponzi scheme since at least 1995 by taking bus drivers' retirement money and putting it in promissory notes provided by two entities that Mr. Mitchell operates, Adivanala AA Investment Trust and AB3 Inc. Mr. Mitchell offered rates of return of 10% to 15% for three- to six-year terms, to about 82 clients nationwide, according to the SEC filing. Apparently, the firm said it was able to achieve such high returns, to use one example, by "using leverage to invest in certain government-backed-bond funds and zero-coupon discount bonds." But in fact, the SEC alleges, Mr. Mitchell used new investor money to pay interest to existing clients. Indeed, the SEC said in the complaint that Mr. Mitchell has admitted that so far this year, he owes $1.2 million in interest and principal payments to his investors. Mr. Mitchell, the SEC claims, has been keeping about 20% of the money for his own expenses. A call placed to Mitchell Porter in Los Angeles was not returned. According to the complaint, Mr. Mitchell, the principal of his firm, which is a registered investment adviser with the SEC, would get new clients by word of mouth and would also write to retirement-age bus drivers working in the Los Angeles County Metropolitan Transit Authority, suggesting that they turn over their retirement savings to him in a lump sum. One client received such a letter from Mr. Mitchell in June of 2008, according to the complaint, boasting of Mitchell Porter's long association with MTA retirees and its connection with several well-known financial institutions. A judge for the U.S. District Court for the Central District of California has granted the SEC's request for a temporary restraining order and asset freeze against Mr. Mitchell and his companies, the SEC said.