U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21432 / March 4, 2010

Securities and Exchange Commission v. Mitchell, Porter & Williams, Inc., The Adivanala AA Investment Trust, AB3, Inc., Thomas L. Mitchell, United States District Court for the Central District of California, Case No. 10-CV-01576 PSG (FFM) (March 3, 2010)

SEC HALTS $14.7 MILLION PONZI SCHEME TARGETING RETIRED BUS DRIVERS

The Securities and Exchange Commission ("Commission") obtained an asset freeze and other emergency relief to halt an ongoing Ponzi scheme targeting retired bus drivers living in the Los Angeles area.

The Commission alleges that Thomas L. Mitchell, ("Mitchell"), through his investment advisory firm Mitchell, Porter & Williams, Inc. ("MPW"), operated two entities, the Adivanala AA Investment Trust (the "AAA Trust") and AB3, Inc., ("AB3"), which collectively raised at least $14.7 million from 82 MPW clients nationwide.

The Commission's complaint alleges that MPW's clients, many of whom are recently retired bus operators, were referred to the firm by former colleagues. According to the complaint, Mitchell met with the clients, and encouraged them to take their retirement pensions as a lump sum payment, rather than a monthly annuity. The complaint alleges that Mitchell advised MPW's clients to invest their retirement money in a promissory note offered by the AAA Trust and AB3. The complaint further alleges that the promissory note offering carried fixed interest returns ranging between 10-15% per year for 3-6 year terms. The complaint alleges that Mitchell made various claims to investors as to how he could generate such large returns, including investing in stocks, bonds, and real estate.

The Commission's complaint, which was filed in federal court in Los Angeles, alleges that, rather than making any actual investments, Mitchell and the other defendants in fact operated a Ponzi scheme, in which new investor money was used to pay interest to existing investors. The complaint alleges that between April 2009 and December 2009, the AAA Trust raised approximately $1.4 million from 6 investors. According to the complaint, $1.1 million of these funds were used to pay interest to existing investors, and another $300,000 was diverted to MPW, which Mitchell used to pay his living expenses. The complaint alleges that during this time, the AAA Trust only invested $32,000 worth of investor funds.

On March 3, 2010, the Honorable Philip S. Gutierrez, United States District Judge, granted the Commission's application for a temporary restraining order against the defendants and issued orders freezing their assets and prohibiting the destruction of documents. On March 16, 2010, the Court will hold a hearing on the Commission's motion for a preliminary injunction.

The Commission's complaint charges defendants with violating the antifraud, securities registration and broker-dealer registration provisions of the federal securities laws. In addition to the emergency relief, the Commission seeks preliminary and permanent injunctions, disgorgement, prejudgment interest, and financial penalties.

See Also: SEC Complaint

 
http://www.sec.gov/litigation/litreleases/2010/lr21432.htm

Last modified: 3/04/2010