Financial fraud often goes unnoticed when the economy is strong. But in times like these, scams tend to fall apart.
That’s especially the case with Ponzi schemes that rely on new investors to pay off older ones. In a tough economy, fresh money tends to dry up while withdrawals tend to rise.
A local example came to light this month when the Securities and Exchange Commission announced that it filed fraud charges against an L.A. investment adviser, Thomas Mitchell, and his firm, Mitchell Porter & Williams Inc. They are accused of running a $14.7 million Ponzi scheme targeting former L.A. bus drivers.
“The bad economy has a way of uncovering them,” said Seong Kim, a partner in the Century City office of law firm Steptoe & Johnson LLP who specializes in fraud cases but was not involved in this particular one.
Mitchell allegedly solicited money from 82 individuals, mostly drivers retired from the Los Angeles County Metropolitan Transit Authority, to invest in stocks, bonds and real estate.
Retired bus drivers are actually a fairly rich target as they are former public employees with good pensions. Many such schemes also tend to target affinity groups, in which the unknowing victims can easily bring in other investors.
The SEC complaint alleges that Mitchell met the drivers and encouraged them to take their pensions in a lump sum and invest the proceeds with him.
Instead, Mitchell allegedly used new investor money to pay interest to previous investors. Additionally, he used about 20 percent of the funds for personal use, including paying his mortgage, buying a luxury car, attending sporting events and taking a cruise, according to the charges filed March 3.
“Mitchell and his firm jeopardized the hard-earned money of retirees and egregiously abused a position of trust with these clients,” said Rosalind Tyson, director of the SEC’s L.A. office, in a statement.
The SEC obtained a temporary restraining order and asset freeze against Mitchell and the firm. Calls placed to Mitchell were not returned.
In the past year, a number of local scams have been unearthed, including a $23 million scheme targeting Latino immigrants in Southern California.
Equity Activity
L.A.’s private equity industry has been busy of late.
Last week, OpenGate Capital LLC announced two separate acquisitions, while another local firm, Skyview Capital LLC in Beverly Hills, completed a deal of its own.
OpenGate, a five-year-old firm headquartered in Century City, acquired the high-end Nicole Farhi fashion label from French Connection Group PLC, which is struggling with major losses. The deal could total more than $7 million.
The following day, OpenGate announced the acquisition of Philips Business Communications, a Brazilian telecommunications company, for an undisclosed sum.
The firm, which targets underperforming divisions of larger companies, said it anticipates as many as two more deals in the coming weeks.
Skyview, meanwhile, acquired the Ras/Trax unit from technology company UTStarcom. The unit processes online credit card transactions. Terms were not disclosed.
Lending Up
Local small business loans for commercial real estate rose in February for the third consecutive month, according to figures released recently by the U.S. Small Business Administration.
In the L.A. district, $84.9 million in SBA-504 loans, used by small businesses primarily for purchases of office and industrial properties, was approved by the agency during the month. That is up 19 percent from January, when $71.6 million was approved, and up 67 percent from December, when lenders originated $50.9 million in SBA-504 loans.
CDC Small Business Finance, the nation’s largest SBA-504 lender, accounted for nearly half of the loans approved in Los Angeles during February.
C-Suite News
Union Bank, the regional banking giant owned by UnionBanCal Corp., announced that Bita Ardalan has been appointed executive vice president and head of the Greater Los Angeles commercial banking group. … First Foundation Advisors, a wealth management firm based in Irvine, has hired Louis Abel as managing director in the firm’s newly established Pasadena office. … The Los Angeles Police Federal Credit Union, headquartered in Van Nuys, announced that Daniel Duran was appointed chairman for 2010. Additionally, three new directors were elected: Lorie Taylor, Andre Plummer and Cliff Ruff.
