Desert company cuts back business

PALM DESERT: Sunburst says it has no conection to MX Factors, which is
under investigation.

Thursday, October 23, 2003

By Devona Wells / The Press-Enterprise

A Palm Desert firm has sent its employees home and stopped accepting
investments after plagiarizing marketing materials from an Inland
company that is being investigated.

Sunburst Financial Systems also dismantled a Web site that "plagiarized
sales and marketing information out of MX Factors," said Sunburst
general manager Christopher Oetting by phone Wednesday. He declined to
say why biographical information on one of Sunburst's managers mirrored
that of Richard Harkless, the owner of MX Factors.

Riverside's MX Factors is being investigated by the U.S. Postal
Inspection Service and the Securities and Exchange Commission, and has
been accused in a recent lawsuit of operating a Ponzi scheme.

Like MX Factors, Sunburst Financial does not have a license to sell
securities in California, according to the state Department of
Corporations. In September, the no-license violation earned MX Factors
an order from the department to no longer accept money from investors.
Spokeswoman Kam Coveyou said she could not confirm whether such an order
would be issued to Sunburst or whether an investigation of the company
is under way.

Oetting said Sunburst and MX Factors are not connected.

"We are not MX Factors. We are not affiliated with MX Factors. None of
the principles of MX Factors are involved with Sunburst," he said.

But biographical information about a Sunburst director named Richard
"Rick" Nelson is very similar to that of Harkless.

According to literature from Sunburst and MX Factors, both Nelson and
Harkless have an MBA with an emphasis in business organization and
mathematical applications, were collection agents for a national firm in
1986 and started a company for clients needing protection from
collection agents.

Some sentences are exact duplicates, including: "This company was one of
the first in California to begin converting sole proprietors and
partnerships to limited liability companies. The company continues today
and has a client base of over 150 manufacturers and wholesalers."

Harkless could not be reached for comment Wednesday.

In August, Sunburst opened in Palm Desert, according to Oetting. The
company has pulled in $205,000 from nine investors, he said in a phone
interview. A company name is absent from the front door of the Sunburst
office on Fred Waring Drive. All business is conducted by phone, fax or
the Internet, he said.

Sunburst incorporated in California on Sept. 11 - two days after MX
Factors investors were notified in a letter that it was no longer taking
funds. Nevada records show MX Factors came to be in 2001.

Sunburst shut down its Web site and let go of its seven employees for a
week, said Oetting. He said he was acting on the advice of company
lawyers after he received a call Tuesday from Barry Minkow, an
investigator with the Fraud Discovery Institute. Minkow, jailed in 1988
for securities fraud, said he has been checking into Sunburst for two
weeks and turned over information he uncovered to a postal inspector and
the Securities and Exchange Commission. Minkow also shed light on MX
Factors and gave his research to the Better Business Bureau and has
since shared it with investors.

Sunburst saw MX Factors' literature and loved it, said James Duncan, a
Sunburst consultant. On its Web site, Sunburst advertised a 17 percent
yearly return to investors who put in at least $20,000. The money would
be used to finance other companies by purchasing accounts receivable, a
practice called factoring - the arrangement MX Factors offered its
investors.

"We thought we could do the same thing. Did we make some mistakes?
Probably. But, that's why we stopped. We'll pay the fines, face the
repercussion," Duncan said by phone.

Since MX Factors was ordered to stop taking investments, a trio of
lawsuits have been filed by investors and customers seeking their money
from the Riverside firm. Estimates put the amount invested in MX
Factors, which promised investors a 12 percent return every 90 days, at
$50 million or more. An Oct. 2 lawsuit asks for more than $26 million
and accused MX Factors of running a Ponzi scheme, which uses money from
new investors to pay the original ones.

Caren Singer, an MX Factors investor for more than two years, attempted
to acquire information by phone and in person Tuesday from Sunburst
after hearing about the company from another investor.

Singer saw the Web site before it was taken down and said, "I'm still
trying to catch my breath from the shock."

"This is way more than a coincidence," she said in a phone interview.

A San Diego accountant hired to reconcile the accounts of MX Factors
said Wednesday he's received financial documents from at least 150
participants. Dan Tobias said by phone that he hopes to have the job
done by the end of the year.

An e-mail newsletter warning investors about Sunburst was sent out
Monday by Venture Research Institute. The Lake Forest institute provides
information on private investments and issues warnings about ones it
finds violating laws and other guidelines.

"The suspicion is that Sunburst Financial is a continuing effort of the
folks that brought you MX Factors," the e-mailed warning says.

Staff writer Jonathan Shikes contributed to this story.Reach Devona
Wells at (9090 368-9559 or dwells@pe.com