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Inland Empire

Stop Accepting Funds, Firm Told

State regulators say Riverside-based MX Factors was operating without a license or permit. Its promises are called 'unrealistic.'

September 30, 2003|Hugo Martin | Times Staff Writer

A Riverside-based financing firm that has raised more than $21 million in investments has operated without a state permit and has been ordered by the state Department of Corporations to stop accepting money from investors, authorities said.

MX Factors attracted the investment pool by offering a 12% return on investments every 90 days, according to the Department of Corporations. The state agency issued a desist and refrain order Friday, saying the owners of the firm have operated without a permit to sell securities and without a license as a financial lender.

The state Better Business Bureau also issued a recent report, calling the company's promises of a 12% return "unrealistic" and calling some of the company's claims of financial reliability "untrue and misleading."

Gary Almond, general manager of the Southern California office of the Better Business Bureau, reported his suspicions to the Department of Corporations.

Law enforcement sources say the U.S. Postal Inspection Service is also investigating MX Factors, but a spokesman for the postal inspector would not confirm or deny it

MX Factors has operated since 2001, offering financing to companies in exchange for the purchase of the borrower's accounts receivable, according to documents. It is a transaction called factoring.

MX Factors is headed by Richard and Julie Harkless, according to documents.

Neither Richard Harkless nor the company's attorney returned phone calls from The Times seeking comment.

MX Factors came to the attention of authorities through Barry Minkow, the former Reseda businessman who spent seven years in prison for defrauding investors and banks when he operated ZZZZ Best carpet cleaning.

Minkow is now a pastor and also an investigator for the Fraud Discovery Institute, a private San Diego firm that investigates potential fraud for private clients and insurance companies.

Minkow said he began to research MX Factors in May for a client who was interested in investing with the company. He said he first became suspicious when he called the International Factoring Assn., an organization of factoring firms, and found that its leaders had never heard of MX Factors. He turned over his information to the Better Business Bureau.

Minkow also said he was unable to verify any customers who were relying on MX Factors for financing. But he said he spoke to several investors and associates of Harkless to confirm that MX Factors had more than 300 investors and nearly $70 million in investments.

Dana Chiordi, an Arizona woman who along with her husband invested $100,000 in MX Factors, said in an interview that she earned the 12% returns and had received all of her money as of July.

Chiordi said her husband, who is in the carpet business, learned of MX Factors through several clients. She said she has also recruited friends and family to invest in MX Factors. Some of her friends and family have yet to get their investment back, she said.

Although Chiordi said she is concerned about the investigations, by authorities, she said she still has faith in Harkless, who whom she has met twice.

"I trust Rick," she said.

In a letter obtained by The Times, Richard Harkless notified several investors Sept. 9 that MX Factors was under investigation by the Department of Corporations. In the letter, Harkless said that on advice of counsel, the company had decided to end its agreements with investors and stop accepting new investors.

MX Factors had promised to "insure all accounts receivable met rigorous quality standards," according to documents offered to investors. In these documents, MX Factors has also stated said that "70% of all accounts receivable in this program are government-backed and funded."

The Better Business Bureau's report said such a claim implies that MX Factors is factoring accounts receivable from the government.

"We believe this statement is untrue and misleading," the bureau report said.

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