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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, October 8, 2009

California Court Sentences Ponzi Schemer to 100 Years

The SEC announced today that on September 28, 2009 the United States District Court for the Central District of California sentenced Richard M. Harkless, 65, of Riverside, California to 100 years in federal prison. Harkless was convicted in July of three counts of mail fraud, three counts of wire fraud, and one count of money laundering. According to the United States Attorney's Office, Harkless's sentence is believed to be the longest ever imposed in a white collar crime in the Central District of California.

Harkless was charged by the United States Attorney's Office for the Central District of California with orchestrating a multi-million dollar Ponzi scheme between 2000 and late 2003. Harkless and his sales agents fraudulently induced investors nationwide to invest in Mx Factors' notes, which purportedly paid a "guaranteed" return of up to 14% every two to three months. Mx Factors claimed that it would use the investor funds to provide its clients - construction contractors, wholesalers, and manufacturers - with accounts receivable financing. Instead, Harkless operated a Ponzi scheme and skimmed investor funds to finance a Mexican crab fishing business, pay personal expenses, and fund overseas bank accounts. In February 2004, the Commission obtained a restraining order against Harkless, Mx Factors, and the sales agents, and federal criminal authorities executed search warrants. Harkless fled to Mexico shortly thereafter. Harkless was arrested by special agents with IRS-Criminal Investigation two years ago when he traveled to Phoenix.

In a related proceeding, the Commission obtained a final judgment against Harkless on February 6, 2006. That judgment permanently enjoins Harkless from future securities law violations and orders him to pay over $42 million in disgorgement, prejudgment interest, and civil penalties. The Commission also obtained a judgment by default against Mx Factors and its sales agents BBH Resources and JTL Financial. Mx Factors, BBH Resources, and JTL Financial have been under the control of a court-appointed receiver since the Commission's action was filed on February 26, 2004 in federal district court in Riverside, California. And, on June 2, 2006, the Commission obtained a final judgment against Harkless's three sales agents, Daniel Berardi, Jr., Thomas Hawkesworth, and Randall W. Harding ordering disgorgement, prejudgment interest, and civil penalties. The judgment orders Berardi and Hawkesworth, managing members of BBH Resources, LLC, to pay over $11 million in disgorgement, prejudgment interest, and civil penalties. The judgment orders Harding, managing member of JTL Financial Group, LLC, to pay over $17 million in disgorgement, prejudgment interest, and civil penalties. Berardi, Hawkesworth, and Harding received sentences of up to six years as part of the criminal proceeding.

http://lawprofessors.typepad.com/securities/2009/10/california-court-sentences-ponzi-schemer-to-100-years.html

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