Posted on Fri, Feb. 27, 2004
Southern California firms shut down in alleged $33 million scheme

DON THOMPSON

Associated Press

SACRAMENTO - Three Southern California firms were shut down Friday after the federal Securities and Exchange Commission accused them of being part of a
$33.5 million Ponzi scheme that bilked at least 247 investors in the United States and Mexico.

A federal judge froze the assets of Mx Factors LLC of Riverside, BBH Resources LLC of Palm Springs and JTL Financial Group LLC of Corona, and appointed a receiver to take control. Also affected by the order are Richard M. Harkless, 59, of Riverside; Daniel J. Berardi, Jr., 40, of Palm Springs; Thomas Hawkesworth, 49, of Rancho Mirage; and Randall W. Harding, 43, of Corona.

The SEC alleges they engaged in securities fraud by selling at least $33.5 million worth of Mx Factors' notes on the promise they would pay a "guaranteed" return of 12 percent in 60 or 90 days.

Mx Factors said investors' money would go to help construction contractors, wholesalers and manufacturers who were short on cash, and be secured by their accounts receivable, according to the SEC's complaint. The investments were supposed to be safe because 70 percent of the accounts receivable were backed or funded by the government, the company told investors.

That's false, the SEC charged. Operators really were using at least $19.9 million in new investor funds to pay previous investors, while another $5.64 million went toward a crab fishing business, to overseas bank accounts, and to pay personal expenses for Harkless, Berardi, and Hawkesworth, including mortgage payments and credit card bills, the complaint alleges.

BBH Resources, Berardi, and Hawkesworth "skimmed" $1.3 million in investor funds by not turning them over to Mx Factors, the SEC alleged, while BBH Resources and JTL Financial each received undisclosed sales commissions of at least 12 percent.

The SEC is seeking a preliminary injunction to continue the emergency order issued Friday, with a hearing set for March 8.

John W. Cotton, attorney for BBH Resources, said he hadn't read the complaint and couldn't comment. Frank Nemecek, attorney for Harkless and Mx Factors, and Roger J. Buffington, attorney for Randy Harding and JTL Financial Group, were both in court and couldn't immediately comment, their assistants said. Berardi attorney Peter Scalisi and Hawkesworth attorney Frank Peasly did not immediately return telephone messages from The Associated Press seeking comment.

In September, the California Department of Corporations ordered Mx Factors to stop accepting funds because it was operating without a state permit. At the time, the state said the firm had raised more than $21 million by promising a 12 percent return every 90 days. The state said the firm had been operating since 2001.

Barry Minkow, a convicted felon turned anti-fraud investigator for San Diego-based Fraud Discovery Institute, first drew attention to Mx Factors, as he did to what the SEC and federal prosecutors allege was a Ponzi-like scheme by Financial Advisory Consultants, an Orange County-based investment firm headed by James Paul Lewis Jr.