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Better Business Bureau To Investigate its Own Los Angeles Chapter

Photo Courtesy ANGELES) -- The Better Business Bureau says it will "launch an immediate investigation" into its biggest local chapter, the Los Angeles-area BBB, after an ABC News report revealed that the chapter sold memberships to non-existent businesses that immediately received A grades.

The L.A. BBB and its CEO, William Mitchell, have been blasted by critics over what they allege is a "pay for play" scheme in which A plus ratings are only given to business that pay an accreditation fee while F grades are routinely given to business that don't want to join. The probe could have repercussions for the rest of the nation's BBB chapters, however, since the L.A. chapter developed the controversial grading system that is now under fire nationally.

Steve Cox, CEO of the national Council of Better Business Bureaus, announced the probe of the L.A. BBB in a posting on the BBB web site Saturday. The Los Angeles probe was added to a previously announced list of actions the BBB said it planned to take in the wake of an ABC News investigation into its grading system, including no longer automatically awarding higher grades to businesses that pay for accreditation and conducting an "independent third party" review of its accrediting process.

"We are moving ahead with implementing changes right away," said Cox in a statement accompanying his post. "Some are immediate, others will take longer to complete. All will support our commitment to help consumers easily and quickly find trustworthy businesses."

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.

Copyright 2010 ABC News Radio

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