The CEO of the Los Angeles chapter of the Better Business Bureau, William Mitchell, has announced his resignation in the wake of an ABC News report into allegations that the chapter had engaged in a "pay for play" scheme by awarding more favorable ratings to businesses that paid for BBB membership. The announcement comes amid an ongoing investigation of the chapter by the BBB's national headquarters.
Mitchell and the L.A. BBB have been blasted by critics for giving A plus ratings only to businesses that pay an accreditation fee, while businesses that don't want to join are given lower grades, despite having few, if any unresolved complaints. The ABC News investigation also revealed that in a test the L.A. BBB, known as the BBB of the Southland, sold memberships to non-existent businesses that immediately received A grades.
The L.A. probe was added to a previously announced list of actions the national BBB said it planned to take following the ABC News investigation, including no longer automatically awarding higher grades to businesses that pay for accreditation and conducting an "independent third party" review of its accrediting process. The controversial grading system that was used by the BBB nationwide was devised by Mitchell and first used by the Los Angeles chapter.
A spokesperson for the national BBB would not give further details on Mitchell's resignation. Mitchell was unavailable for immediate comment on his decision to resign.
The Los Angeles-area Better Business Bureau is by far the largest of the 108 BBB chapters in the U.S. and brings in the most revenue from membership fees. According to its 2009 tax filing, the L.A. BBB raked in over $6.2 million in accreditation fees in 2008 and paid longtime CEO Mitchell an annual salary of $409,490.
Mitchell devised the letter grade system to replace the previous "satisfactory/unsatisfactory" BBB rating, and has been using it in Southern California for the past five years.
His system was adopted nationwide by the Better Business Bureau in January 2009. In a deposition for a lawsuit in which the L.A. BBB was sued over its grading system, Mitchell testified that his office employed over 30 sales representatives who earned a 45 percent commission for selling first year memberships to business owners.
However, the letter grade system has led to considerable friction in the L.A. business community, with some claiming the BBB was in the business of selling grades for cash. As reported by 20/20, a group of Los Angeles business owners, determined to prove that the accreditation system was a sham, paid $425 apiece to buy BBB memberships for a number of fictitious firms, including one for a non-existent company called Hamas, named after the Middle East terror group. The bogus company listed L.A. BBB CEO Bill Mitchell as its president and gave a non-existent address for its headquarters. The L.A. BBB awarded a membership and an A minus rating to a non-existent sushi restaurant in Santa Ana, California and an A plus to a bogus firm named after Stormfront, a white supremacist group.