Kevin Lawrence, Kevin McCarthy, Donavon Claflin, Clifford Baird, Znetix, HMC Securities; ripoffs, mail & wire fraud. Seattle Washington

The Znetix wesite, www.znetix.com , has been taken over by the Federal court appointed receiver. The site gives details on the investigation and attempts to recover the stolen money.



Znetix founder Kevin L. Lawrence was led away in handcuffs on August 1, 2002 as eight FBI agents arrested this Bainbridge Island, Washington man on 64 counts of fraud and money laundering in what regulators have described as the largest stock swindle in the Washington state's history.



Kevin L. Lawrence is currently being held at the Federal Detention Center SeaTac, Washington.



On 08/06/2002 the federal Judge denied Kevin L. Lawrence bail and he will be jailed until trial.



http://seattlepi.nwsource.com/business/81656_znetix07.shtml

Znetix founder is denied bail

Lawrence can't be trusted, says judge in stock fraud case

Wednesday, August 7, 2002

By JOHN COOK

SEATTLE POST-INTELLIGENCER REPORTER

Kevin Lawrence, the Znetix founder and Bainbridge Island resident who was arrested on 64 counts of fraud and money laundering last week, will remain in a federal detention facility without the possibility of posting bail.



In a hearing yesterday afternoon that lasted a little more than an hour, U.S. Magistrate Judge Ricardo Martinez determined that Lawrence -- accused of orchestrating a $91 million stock scheme that defrauded as many as 5,200 investors -- posed a danger to the community and could not be trusted to show up for court dates.



"Given everything I looked at, there is one thing I am sure of, this court cannot rely on anything Mr. Lawrence says," Martinez said in a brief statement from the bench. "He has shown a blatant disregard of court orders." Martinez then ordered Lawrence detained without bail.



Handcuffed and dressed in a button-down blue shirt, pants and shoes, Lawrence mouthed a few words to family members seated in the second row as he was led out of the courtroom. The 37-year-old, who appeared relaxed during the hearing, frequently whispering in his attorney's ear, did not say anything when asked to comment. Family members declined to comment. A trial date has been set for October.



Russell Aoki, the attorney representing Lawrence, asked the judge to set a $200,000 bond and allow electronic home monitoring. If bail had been allowed, Lawrence's parents would have put up their residence as collateral to help post bond. Alluding to this, Aoki said "he (Lawrence) would do everything in his power not to jeopardize" his boyhood home.



Aoki argued that Lawrence was not a flight risk, saying that he has remained in the area and is "doing everything he can to defend himself." He pointed out that Lawrence recently turned down a fishing vacation to Mexico and a job opportunity at a martial arts studio in Los Angeles because of the pending investigation. An overnight trip to Canada late last month for the Molson 500 auto race was simply a "chance to go up and enjoy the day," Aoki said.



"The whole picture is not as sinister as the government portrays it to be," he said.



But Assistant U.S. Attorney Jeff Coopersmith painted a different scenario, saying that Lawrence has recently disobeyed court orders, carried large sums of cash, traveled to Canada, held an expired drivers license from the Cook Islands and obtained a state of Utah identification card for his 6-year-old son, which according to testimony provided by his ex-wife would be used for a trip to Mexico.



In recent months, Lawrence also has been involved in businesses that relate to the health care field, Coopersmith said.



One of those companies -- named HealthMatrix -- was described by Coopersmith as "a total sham."



"It is the same kinds of representations," Coopersmith said. "Very short on product descriptions, very long on marketing. ... He's been engaging in the same behavior all along."



The Securities and Exchange Commission brought a lawsuit against Lawrence related to Znetix and Health Maintenance Centers in January.



According to court documents filed this week, HealthMatrix and an affiliated company by the name of Pacific Care Partners were formed in Nevada in April.



"HealthMatrix LLC will create and build the framework to merge retail health clubs with predictive health and fitness facilities," the company's business plan says. "Together with Pacific Care Partners LLC, HealthMatrix will be part of an industry that is leading change in today's economy." The business plan goes on to say that "we will emerge to be part of 'The Next Trillion' dollar industry."



Znetix and HMC also were promising to combine health care and fitness in one integrated concept.



"As with the fraud described in the Indictment and the plea agreements of the co-conspirators, Mr. Lawrence is representing that (HealthMatrix and Pacific Care Partners) will produce millions of dollars of revenue in very short order," according to a U.S. Attorneys' filing with the court this week.



It is unclear what position, if any, Lawrence held at those two companies, though documents recovered in a Lexus SUV he was driving Thursday show Lawrence was soliciting funds for the two companies and another, called "Ocean Connections," the filing states.



Coopersmith went on to say that Lawrence's trip to Canada, which included a one-night stay in The Westin Grand hotel valued at $438 Canadian, and a deal to pay $994 per month for a luxury automobile was highly suspect given that Lawrence is collecting weekly unemployment checks from the state. He also said that the magnitude of the alleged fraud -- which federal regulators have called the largest in the state's history -- and the use of shell corporations and overseas bank accounts makes Lawrence a flight risk.



Before issuing his order, Martinez said much of Lawrence's behavior could be interpreted in two ways. But in the end, the judge declined bail.



With Lawrence incarcerated at the federal detention center in SeaTac, Aoki said preparing the defense will be harder. "Do I think of it as a setback?" he asked rhetorically. "It is not the ideal setting to present a defense."



But at least one investor said he's glad Lawrence is off the streets. David Snare, a Seattle resident who believes his $10,000 investment is "painfully gone," said Lawrence may have rallied supporters to follow another misguided company.



"He never had any respect for anyone's money or property before," said Snare. "I am glad to hear that (bail) didn't happen because people could have passed the collection bags for him."



U.S. Department of Justice

United States Attorney

Western District of Washington 601 Union Street, Suite 5100 Tel: (206) 553-7970

Seattle, Washington 98101-3903 Fax: (206) 553-0882



August 1, 2002

BAINBRIDGE ISLAND MAN INDICTED AND THREE DEFENDANTS PLEAD GUILTY IN $91 MILLION ZNETIX STOCK FRAUD CASE



Jeff Sullivan, Criminal Division Chief for United States Attorney's Office for the Western District of Washington; Charles E. Mandigo, Special Agent in Charge, Federal Bureau of Investigation; Randall Lee, Regional Director, Securities and Exchange Commission Pacific Regional Office; Larry Bateman, Acting Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division; and Mark Thompson, Acting Director, State of Washington Department of Financial Institutions, announced today that on July 31, 2002, a federal grand jury in Seattle returned a 64-count Indictment against KEVIN L. LAWRENCE, age 37, of Bainbridge Island, Washington. LAWRENCE, the founder and former CEO of Znetix, Inc., Health Maintenance Centers, Inc., (HMC), and related companies, was arrested by federal agents on the morning of August 1, 2002. The Indictment charges LAWRENCE with securities fraud, wire fraud, mail fraud, money laundering, and conspiracy to commit these offenses. LAWRENCE faces a maximum sentence on all counts of 560 years in prison. Three other defendants, DONAVON CLAFLIN, KEVIN McCARTHY, and CLIFFORD BAIRD, have entered guilty pleas as part of the government's investigation. On July 30, 2002, CLAFLIN pled guilty to securities fraud and conspiracy to commit securities fraud, mail fraud, and unlawful sale of unregistered securities, and he faces a maximum penalty of ten years in prison. On July 23, 2002, McCARTHY pled guilty to mail fraud and conspiracy to commit securities, mail and wire fraud, and money laundering, and he also faces a maximum sentence of ten years imprisonment. Also on July 30, 2002, BAIRD pled guilty to conspiracy to commit securities, mail and wire fraud, and money laundering, and he faces a maximum penalty of five years imprisonment. CLAFLIN and BAIRD are scheduled to be sentenced before United States District Judge Marsha J. Pechman on October 4, 2002, at 1:30 p.m., and McCARTHY will be sentence on November 1, 2002, at 9:00 a.m., also before Judge Pechman



The Indictment against KEVIN L. LAWRENCE alleges that from 1995 until the present, LAWRENCE and other coconspirators engaged in a massive scheme to defraud over 5,000 investors in Washington state and throughout the country out of over $72 million dollars. According to court documents filed in a parallel civil proceeding, SEC v. Kevin L. Lawrence, et. al., C02-153P (W.D.Wa.), Znetix and its affiliates solicited and received as much as $91 million from the investors. The charging documents allege that investors were told by LAWRENCE and others affiliated with HMC that if they purchased the securities of HMC, for one dollar per share, the investors would receive four shares of Znetix for each share of HMC at the point when Znetix purchased or merged with HMC. According to the indictment, investors were further told that Znetix would imminently engage in an Initial Public Offering ("IPO"), after which Znetix securities could be freely traded on exchanges such as NASDAQ, and would be worth as much as $12-$20 dollars per share or even more.



For example, the Indictment alleges that one investor was falsely told by LAWRENCE that if he invested $400,000 in HMC in June 2000, the investment would be worth between $19 million and $32 million less than six months later. The Indictment further alleges that investors were falsely told that Znetix had retained prominent investment banking and underwriting firms who were working on the IPO, that Znetix had filed or would very shortly file a registration statement with the United States Securities and Exchange Commission, that HMC and Znetix had developed proprietary medical and fitness software and equipment which would generate substantial revenues, that Znetix had sold or would shortly sell licenses for approximately one million dollars apiece to operate health and fitness clubs throughout the United States, that leading sports and entertainment figures had agreed to purchase or license health and fitness clubs from Znetix, that KEVIN L. LAWRENCE had previously been employed with the firm Morgan Stanley in Japan, that Znetix would receive $500 million from an investor group from China, that Znetix or an affiliate had or was about to obtain a contract with the United States Department of Defense worth millions or even billions of dollars, and that KEVIN L. LAWRENCE was not receiving any compensation from HMC and Znetix. The Indictment alleges that in fact, LAWRENCE and the other coconspirators used millions of dollars of the investors' money to fund lavish lifestyles, including buying many luxury cars, homes, boats, jewelry, and other items.



Court records also show that DONAVON C. CLAFLIN was associated with HMC from 1995 and in 1997 became the Treasurer of HMC and the person in control of most of the bank accounts associated with that company. Court documents reveal that, among other things, CLAFLIN used investor funds for his own personal use and funded the coconspirators' lavish lifestyles out of company funds while receiving millions of dollars from investors and signing thousands of stock certificates reflecting their investments.



According to court records, McCARTHY and BAIRD knowingly joined the conspiracy in April 2001 and June 2001 respectively. BAIRD reportedly was the manager of Cascade Pointe LLC and Cascade Pointe of Nevis LLC, from June 22, 2001, through January 2002. McCARTHY was the head of HMC's investor relations department from September 2000 through January 2002. Court documents allege that McCARTHY and LAWRENCE secretly controlled the activities of Cascade Pointe, which was formed about three weeks after the Securities Division issued a Cease and Desist Order barring HMC and LAWRENCE from selling securities. Cascade Pointe allegedly received over $12 million of investor funds after the Cease and Desist Order, and transferred millions of dollars to accounts at HMC controlled by CLAFLIN. Court documents report that McCARTHY, BAIRD, and others affiliated with Cascade Pointe falsely told investors that Cascade Pointe was a private investment firm under management separate and apart from HMC, and that Cascade Pointe was one of the nation's leading private investment firms and employed investment strategies based on "diversification" and "rock-solid financials. According to court records, investors were further falsely told that Cascade Pointe would and had the ability to fund, by means of cash or lines of credit, a "rescission offer" to be made by HMC to its investors, which would afford HMC investors the opportunity to choose between a refund of their investments or keeping their investments with HMC in place, and that this was a final step before the Znetix IPO. McCARTHY, BAIRD, and others affiliated with Cascade Pointe also allegedly established companies in the Carribean nation of Nevis to conceal proceeds of the fraud, and had those Nevis companies issue fraudulent letters of credit to Cascade Pointe to make it appear that Cascade Pointe had over $50 million at its disposal to fund the HMC rescission offer.



On February 15, 2002, Judge Marsha J. Pechman issued a Preliminary Injunction order freezing the various bank accounts associated with Znetix, HMC, and Cascade Pointe, and appointing a receiver for these companies. The receiver, the United States Attorney's Office, and the FBI have been working to recover assets for the benefit of victims; to date over 40 cars, boats, homes, and other items have been seized by the FBI around the country, and the receiver has taken possession of countless other items. The items seized or taken by the receiver include a $330,000 seven carat diamond ring, homes in Hawaii and Bainbridge Island, a Ferrari F-1 360 Modena Spyder, several Hummers and Mercedes G500 trucks, exotic swords and daggers, and many other luxury items.



Mr. Sullivan stated that the conspiracy and scheme that has been charged is one of the largest and most egregious frauds ever perpetrated on investors and creditors, and, according to investigators, is believed to be the largest fraud case ever charged in the State of Washington. The charges that have been brought should send a strong message that the Office of the United States Attorney, along with its law enforcement and securities enforcement partners, will quickly and thoroughly investigate allegations of securities fraud and corporate crime and bring those responsible to justice. The investigation of Znetix, HMC, Cascade Point, and affiliated entities and individuals is ongoing.



The public is reminded that the Indictment against KEVIN L. LAWRENCE contains only allegations, and that all defendants must be proven guilty beyond a reasonable doubt in a court of law.



This case was investigated jointly by the Federal Bureau of Investigation, the Securities and Exchange Commission, the Internal Revenue Service, the State of Washington Department of Financial Institutions, Securities Division, and the securities enforcement authorities in several other states, including the states of Illinois, Wisconsin, Oregon, and Alabama, and with the assistance of other law enforcement agencies including the Bainbridge Island Police Department, the Washington State Department of Licensing, the Washington State Secretary of State, the Washington State Department of Revenue, and state securities and business corporation agencies in Nevada, Arizona and Oklahoma. Assistant United States Attorneys Jeffrey B. Coopersmith, Ye-Ting Woo, and Richard E. Cohen are prosecuting the case.



As part of its victim notification responsibilities, the United States Attorney's Office will be working with the receiver to notify individuals who are believed to be victims of the scheme alleged in the Indictment and the other charging documents of court proceedings in this case. Members of the public who believe that they may be victims of investment fraud generally, or who would like to report other suspected investment frauds, are encouraged to contact the Securities Division's fraud hotline at 1-800-372-8303.



For further information please contact Jeffrey B. Coopersmith, Assistant United States Attorney or John Hartingh, Executive Assistant United States Attorney, at (206) 553-7970.





"Seattle law firm sued over Znetix involvement



Saturday, August 31, 2002



By JOHN COOK

SEATTLE POST-INTELLIGENCER REPORTER



Ogden Murphy Wallace, a 100-year-old Seattle law firm, is being sued for $51.5 million for helping Kevin Lawrence push forward an alleged stock scam under the guise of Health Maintenance Centers and Znetix.



The suit, filed last month in U.S. District Court by federal equity receiver Michael Grassmueck, says that Ogden Murphy and three of its lawyers "basically counseled HMC to engage in a 'Ponzi' scheme." It also alleges that the law firm "turned a blind eye" to the unlawful sales of securities by Lawrence.



Lawrence, along with HMC, Znetix and an affiliated company known as Cascade Pointe, were sued in January by the Securities and Exchange Commission for allegedly defrauding more than 5,000 investors of $91 million. Federal regulators say it is the largest stock fraud ever to originate in the state.



Ogden Murphy has yet to file a response to the lawsuit, although assistant managing member Karen Sutherland yesterday said "our firm does not believe it has done anything wrong."



The three lawyers named in the suit, Franklin Dennis, James Vandeberg and John O'Donnell, did not return calls or e-mails seeking comment. They remain employed at the firm, although Vandeberg is on medical leave unrelated to the lawsuit, Sutherland said.



Robert Sulkin, who represents Dennis, said the lawsuit is in the very early stages. Still, he is confident that his client will prevail. "When all the evidence is out, Franklin Dennis will have met the highest legal and ethical standards. Period," he said.



Ogden Murphy started working with HMC and Lawrence in October 2000 after an investigation was initiated by the state's Department of Financial Institutions.



Sutherland said her firm was simply trying to help HMC and Lawrence comply with the state's investigation.



"We deny the allegations in the complaint," she said. "We were working to bring HMC in compliance with the securities law and to give an opportunity to the investors to recover their money."



But the complaint says that Ogden Murphy did not have the HMC shareholders in mind.



"Defendants regularly placed the interests of Lawrence ahead of the interests of HMC or Znetix and, in many respects, advised HMC or Znetix to take actions and do things in a manner that really benefited Lawrence," the complaint says.



Ogden Murphy allegedly recommended a merger between HMC and Znetix even though it would bring no benefit to the investors or creditors, the suit says. It also allegedly knew that investors' money was being used for the personal benefit of Lawrence. The suit goes on to say that Ogden Murphy did not properly address a conflict of interest when it represented both HMC and Lawrence.



The receiver is seeking damages for negligence and breach of fiduciary duty. It also wants an estimated $1.5 million in legal fees returned. Grassmueck, the court appointed receiver, declined to comment on the suit as did his attorneys Bruce Johnson and David Zaro.



Ogden Murphy was sued twice for malpractice in 1997, although Sutherland said the firm has never encountered a lawsuit like this. The other two malpractice suits were dismissed without a judgment, she said.



Sutherland, a 12-year veteran of the firm, said it is disappointing that the lawsuit would come during Ogden Murphy's 100th anniversary. But she expressed confidence that the firm will survive the allegations.



"We are looking forward to another 100 years of legal services," she said. Ogden Murphy, whose clients include Medtronic Inc., Overlake Hospital, Safeco Insurance Co. of America and several cities, employs 50 lawyers.



The lawsuit against Ogden Murphy is one of many legal actions that Grassmueck has initiated in the past two months as he attempts to recover investor funds.



Last month, Grassmueck filed suit against more than a dozen companies and individuals, including filmmaker Warren Miller, Huff Motorsports, The St. Regis Los Angeles Hotel and Spa, and J. Wuensche & Co. The suit alleges that the individuals and companies, all creditors of HMC or Znetix, received preferential transfers of more than $1 million last fall.



Grassmueck also has legal action pending against individuals and companies to invalidate court judgments, liens and other interests in property.



Last week, Grassmueck said he hopes to recover as much as $20 million through these types of actions.



Lawrence, 37, was arrested by FBI agents earlier this month on Bainbridge Island on charges of fraud and money laundering. He remains in a SeaTac detention facility, facing a maximum of 560 years in prison if convicted. Three men already have pleaded guilty in the case. Lawrence has pleaded not guilty."



http://www.sec.gov/litigation/litreleases/lr17335.htm

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17335 / January 24, 2002

SECURITIES AND EXCHANGE COMMISSION v. HEALTH MAINTENANCE CENTERS, INC., ZNETIX, INC., CASCADE POINTE OF ARIZONA, LLC, CASCADE POINTE OF NEVIS, LLC, KEVIN L. LAWRENCE, DONOVAN C. CLAFLIN, CLIFFORD G. BAIRD, BAINBRIDGE HUMAN PERFORMANCE CENTERS, PLLC, KIMBERLY ALEXANDER, BONNIE M. COUCH, STACY GRAY, and VICKI L. LAWRENCE, Civil Action No. C 02-0153 P (W.D. Wash. Jan. 23, 2002)

SEC HALTS $74 MILLION SECURITIES FRAUD IN PACIFIC NORTHWEST

On January 23, the Securities and Exchange Commission ("Commission") filed an emergency action stopping an ongoing $74 million securities fraud scheme by Kevin L. Lawrence, 36, of Bainbridge Island, Washington and his companies, Health Maintenance Centers, Inc. ("HMC") and Znetix, Inc. HMC and Znetix, located on Bainbridge Island and in Seattle, purportedly develop and operate "medically integrated" health clubs. The scheme induced more than 5,000 investors nationwide to invest with promises of an initial public offering ("IPO") of Znetix that was to occur within a specific time (one month to three years) and with a specific price of $3 to $60 per share.



In its lawsuit and request for emergency relief, the Commission alleges that Lawrence and Donovan Claflin, 31, of Redmond, Washington, Lawrence's right hand man and HMC's Treasurer, misrepresented that:



Investors would receive four shares of Znetix for every one share of HMC and that investors could immediately sell their shares in the IPO at $3 to $60 a share when, in fact, there has been no IPO nor is one possible in the foreseeable future;



Znetix has existing operations when in fact, it does not; and



The investment would be used for HMC/Znetix operations and to capitalize the Znetix IPO when, in fact, Lawrence and Claflin used more than $16 million, or 22%, of investor funds for their own benefit or the benefit of others. Nearly $14 million was used to finance Lawrence's grossly lavish lifestyle, which included spending $2.1 million purchasing at least 23 automobiles including exotic cars such as a Lamborghini and Vipers for himself. He also spent almost $500,000 on cars for his family and friends. Lawrence's other lavish spending included nearly $2 million on homes, $1 million on boats and $330,000 on an engagement ring for relief defendant Stacy Gray. Claflin spent more than $2 million of investor funds for his personal use.

The Complaint further alleges that, since May 2001, defendant Clifford G. Baird has offered and sold about $17 million of HMC securities through two entities, defendants Cascade Pointe of Arizona, LLC and Cascade Pointe of Nevis, LLC (collectively, "Cascade"). It appears that Cascade was established to evade a Cease and Desist order issued against Lawrence and HMC on April 9, 2001 by the State of Washington's Department of Financial Institutions, Securities Division ("DFI"). The action also names as relief defendants Bainbridge Human Performance Centers, Kimberly Alexander, Bonnie Couch, Vicki Lawrence and Stacy Gray who received more than $3 million of investor funds from Lawrence. The relief defendants are not charged with violations of the federal securities laws, but are charged for the purpose of recovering proceeds that they illegitimately received from the HMC/Znetix fraud.



In the lawsuit, which was filed in federal court in Seattle, Washington, the Commission obtained an order freezing the assets of the defendants, and temporarily enjoining Lawrence, Claflin, HMC and Znetix from future violations of the registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and enjoining Baird and Cascade from future violations of Sections 5(a) and 5(c) of the Securities Act of 1933. The Commission also seeks preliminary and permanent injunctions, and other relief, including disgorgement and civil penalties against Lawrence, Claflin, HMC, Znetix, Baird and Cascade. The Commission also seeks disgorgement against the relief defendants. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed over the companies is scheduled for January 31, 2002.



The defendants named in the Commission's complaint are:



Health Maintenance Centers, Inc., a Washington corporation located on Bainbridge Island, Washington. HMC purports to develop a medically integrated health fitness model for health clubs.



Znetix, Inc., a Delaware corporation located on Bainbridge Island. Znetix purports to market the HMC model of a combined fitness and medical facility, design and market medical equipment, and create software analyzing a user's performance on fitness equipment.



Cascade Pointe of Arizona, LLC and Cascade Pointe of Nevis, LLC, Arizona and Nevis limited liability companies, respectively. Both entities' sole purpose is to raise funds to acquire a majority of the common stock of HMC.



Kevin L. Lawrence of Bainbridge Island, Washington. Lawrence is the president of HMC and Chairman of the Board of Znetix. Lawrence founded both HMC and Znetix and controls the finances of both entities.



Donovan C. Claflin of Redmond, Washington. Claflin is HMC's treasurer who maintained HMC's bank accounts and sold HMC's securities.



Clifford G. Baird of Scottsdale, Arizona. Baird is the managing director of the Cascade entities. Baird solicited (and continues to solicit) investors.

The defendants named for purposes of seeking recovery of ill-gotten gains are:



Bainbridge Human Performance Centers, PLLC ("BHPC") a Washington professional limited liability company nominally owned by a Znetix employee and controlled by Lawrence.



Kimberly Alexander, also known as Kimberly Millar, is Lawrence's sister and an employee of either Znetix or HMC who has signatory authority over several HMC and BHPC bank accounts.



Bonnie Couchis Lawrence's mother and an ex-employee of either HMC or Znetix.



Vicki L. Lawrence is the estranged wife of Lawrence who was a named employee of HMC and/or Znetix.



Stacy Gray is Lawrence's fiance and an employee of either HMC or Znetix who has signatory authority over several HMC and BHPC bank accounts.

The Commission wishes to acknowledge the assistance of the State of Washington's Department of Financial Institutions, Securities Division, the FBI, the United States Attorney's Office for the Western District of Washington and the Internal Revenue Service, Criminal Investigation Division. The case was investigated jointly by the Commission, Washington's Department of Financial Institutions, the FBI, the U.S. Attorney's Office, and the IRS Criminal Investigation Division.



http://www.sec.gov/litigation/litreleases/comp17335.htm

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

SECURITIES AND EXCHANGE COMMISSION,



Plaintiff,



v.



HEALTH MAINTENANCE CENTERS, INC., BAINBRIDGE HUMAN PERFORMANCE CENTERS, PLLC, ZNETIX, INC., CASCADE POINTE OF ARIZONA, LLC, CASCADE POINTE OF NEVIS, LLC, KEVIN L. LAWRENCE, DONOVAN C. CLAFLIN, CLIFFORD G. BAIRD, KIMBERLY ALEXANDER, BONNIE M. COUCH, STACY GRAY and VICKI L. LAWRENCE



Defendants.



Case No.



COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS



Plaintiff Securities and Exchange Commission ("Commission") alleges as follows:



JURISDICTION AND VENUE

1. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. 77v(a), and Sections 21(d)(3)(A), 21(e) and 27 of the Exchange Act, 15 U.S.C. 78u(d)(3)(A), 78u(e) and 78aa.



2. Venue is proper in this district pursuant to Section 22 of the Securities Act, 15 U.S.C. 77v, and Section 27 of the Exchange Act, 15 U.S.C. 78aa, because certain of thetransactions, acts, practices and courses of conduct constituting violations of the laws alleged herein occurred within the Western District of Washington and because certain of the defendants reside therein.



SUMMARY

3. This case involves the ongoing unregistered and fraudulent offer and sale of over $90 million of unregistered securities by Kevin L. Lawrence ("Lawrence"), Donovan C. Claflin ("Claflin") and Clifford G. Baird ("Baird"). Lawrence and Claflin offered and sold about $74 million of securities of Health Maintenance Centers, Inc. ("HMC") and Znetix, Inc. ("Znetix"), both of which entities were founded and are controlled by Lawrence. Claflin, Lawrence, HMC and Znetix are collectively referred to as the "HMC Defendants." Baird offered and sold about $17 million of securities of HMC through two entities, Cascade Pointe of Arizona, LLC and Cascade Pointe of Nevis, LLC. These two entities are collectively referred to as the "Cascade LLCs." Baird and the Cascade LLCs are collectively referred to as the "Cascade Defendants."



4. The relief defendants, Stacy Gray, Vicki L. Lawrence, Bonnie M. Couch, Kimberly Alexander and Bainbridge Human Performance Centers, PLLC ("BHPC") (collectively, the "Relief Defendants"), received proceeds of the fraudulent scheme to which they have no legitimate claim.



5. The unregistered offerings by the HMC Defendants began in 1995, and since that time they have raised approximately $74 million from more than 5,000 investors throughout the country. The unregistered offerings by the Cascade Defendants began in or about May 2001, and since that time they have raised at least $17 million. The offer and sale by both the HMC Defendants and the Cascade Defendants is ongoing.



6. The HMC Defendants have made numerous material misrepresentations. The HMC Defendants falsely, intentionally and continually represented to investors that an initial public offering ("IPO") of Znetix was imminent. The HMC Defendants also misrepresented to investors that the Znetix IPO would be priced at between $3 and $60 per share and that investors could sell their shares immediately after the IPO.



7. Additionally, on or about January 19, 2001, Znetix issued a press release that included false and misleading statements regarding Znetix's current business activities. The release stated that Znetix designs, manufactures and markets certain medical equipment and creates certain medical software. The press release was false and misleading in that those were Znetix did not perform those activities when the press release was issued. Neither Znetix nor HMC has commenced any manufacturing of medical equipment or creation of any software.



8. The HMC Defendants, and each of them, have also misrepresented and omitted to disclose the use of funds. Instead of using investor funds to capitalize the Znetix IPO, as represented to the investors, the HMC Defendants used at least $16.3 million of investor funds for the personal benefit of Lawrence, Claflin, the Relief Defendants and others. Among other things, Lawrence used $2.1 million of the investor funds to purchase at least 23 cars including luxury cars, $1 million for various boats, and $1.7 million for real estate and expensive jewelry, including a $330,000 engagement ring for Stacy Gray.



9. The HMC Defendants also made additional misrepresentations to the investors after their purchase of HMC securities in order to lull investors into believing that their investments were safe and secure.



10. The HMC Defendants and the Cascade Defendants, by engaging in the above conduct, have violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. 77e(a) and (c). The HMC Defendants have also violated the antifraud provisions of Section 17(a) of the Securities Act, 15 U.S.C. 77q(a), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5.



THE DEFENDANTS

11. HMC is a Washington corporation, located on Bainbridge Island, Washington. HMC purports to develop a medically integrated health fitness model for health clubs.



12. Znetix, previously known as Project X, is a Delaware corporation located on Bainbridge Island, Washington. Znetix purports to (a) market the HMC model of a combinedfitness and medical facility; (b) design, manufacture and market medical equipment; and (c) create software that analyzes a participant's performance on the fitness equipment.



13. Cascade Pointe of Arizona, LLC and Cascade Pointe of Nevis, LLC are Arizona and Nevis limited liability companies, respectively, whose sole purpose is to raise funds to acquire a majority of the common stock of HMC. Cascade Pointe of Nevis, LLC is the sole member of Cascade Pointe of Arizona, LLC.



14. Lawrence is the President of HMC and the Chairman of the Board of Znetix. Lawrence is the founder of both HMC and Znetix and controls the finances of both entities.



15. Claflin is the treasurer of HMC. His duties include maintaining bank accounts of HMC and selling HMC securities. Claflin has signatory authority over various bank accounts of HMC, BHPC and Znetix.



16. Baird is the managing director of the Cascade LLCs. Baird solicited (and continues to solicit) investors on behalf of the Cascade LLCs and caused the proceeds to be transferred to the HMC Defendants.



THE RELIEF DEFENDANTS

17. Bainbridge Human Performance Centers, PLLC ("BHPC") is a Washington professional limited liability company, located in Bainbridge Island, Washington. BHPC is nominally owned by a Znetix employee and directly controlled by Lawrence. BHPC is a conduit for receiving and disbursing investor funds. BHPC is also the employer for all HMC and Znetix employees.



18. Kimberly Alexander, also known as Kimberly Millar ("Alexander"), is the sister of Lawrence. Alexander is an employee of either Znetix or HMC and has signatory authority over several HMC and BHPC bank accounts. Alexander received at least $1 million of investor funds through direct cash payments (other than compensation) or purchases of real estate on her behalf.



19. Bonnie Couch ("Couch") is the mother of Lawrence and an ex-employee of either HMC or Znetix. Couch received nearly $200,000 of investor funds through direct cash payments (other than compensation).



20. Vicki L. Lawrence ("Vicki Lawrence") is the wife of Lawrence. Vicki Lawrence and Lawrence are presently separated and have filed for a divorce. Although Vicki Lawrence is a named employee of HMC and/or Znetix, Vicki Lawrence has never performed any services for either of the two entities. Vicki Lawrence received at least $1.5 million of investor funds through direct cash payments or purchases of cars on her behalf.



21. Stacy Gray ("Gray") is the fiancee of Lawrence and an employee of either HMC or Znetix. Gray has had signatory authority over several HMC and BHPC bank accounts. Gray received at least $500,000 of investor funds for reasons other than compensation, including a $330,000 engagement ring from Lawrence.



GENERAL ALLEGATIONS

A. Background

22. HMC and Znetix operate as a single entity and a single issuer with (a) common control of the finances of both entities by Lawrence; (b) intermingling of funds; (c) payments to employees of both companies from the same BHPC bank accounts; (c) interchanging of employees between the two entities; (d) use of the Znetix offering materials to solicit HMC investors; (e) the same general plan of financing for both entities; and (e) an intended merger of both entities.



23. From at least 1995 through the present, the HMC Defendants have raised approximately $74 million from over 5,000 investors nationwide. Of this, HMC raised approximately $64 million from about May 1995 to April 2001. This money was raised from about 5,000 accredited and non-accredited investors by Lawrence, Claflin and sales agents supervised by Lawrence and Claflin. Simultaneously, Znetix raised approximately $10 million during the period from September 2000 to March 2001.



24. In or about April 2001, the Department of Financial Institutions of the State of Washington ("DFI") issued a cease and desist order (the "C&D") against HMC, prohibiting HMC from raising further investor funds.



25. Shortly after the DFI issued its C&D, the Cascade Defendants commenced soliciting investors on behalf of HMC in an effort to evade the C&D. The Cascade Defendantshave so far raised approximately $17 million between May 2001 and December 2001. The Cascade LLCs transfer the investor proceeds to HMC, BHPC and/or Znetix in exchange for HMC shares, purportedly for later distribution to the investors in the Cascade LLC offering. The Cascade Defendants are using the Cascade LLCs to raise funds on behalf of HMC. The offerings by the Cascade LLCs are therefore integrated with the offerings of HMC and Znetix.



26. The monies raised by the Cascade Defendants and the HMC Defendants were commingled. The Cascade Defendants and the HMC Defendants also both represented that investor funds would purportedly be used to develop HMC's integrated health club model.



27. The Cascade Defendants and the HMC Defendants continue to solicit investors and raise funds through the unregistered offer and sale of securities.



B. Misrepresentations and Omissions.

28. The HMC Defendants have made, or caused to be made, the following misrepresentations to investors in connection with the offer and sale of HMC and Znetix securities:



a. That the Znetix IPO was imminent. The time frame for the IPO represented to the investors varied from one month to three years. Additionally, the investors were told that the Znetix IPO would be priced between $3 and $60 and that the investors could immediately sell their stock in or after the IPO. All of these representations were made continually and repeatedly from 1999 to the present, despite the fact that (i) no Znetix IPO has occurred; (ii) neither HMC nor Znetix had any books or records, which are required for any public company; (iii) no investment bankers have ever been retained to underwrite the IPO; (iv) no S-1 registration statement has ever been filed with the Commission for Znetix; (v) the Chief Financial Officer of Znetix specifically informed Lawrence in or about October 2000 that Znetix was not ready for an IPO; (vi) several Znetix officers claim even today that the Znetix IPO is years away; (vii) there was no reasonable basis for determining the IPO price;and (viii) there may be restrictions on the sale of certain or all of the securities of HMC and/or Znetix.



b. That Znetix was an operational entity and had already commenced (i) designing, manufacturing and marketing computerized medical equipment; and (ii) creating software that collects, analyzes and researches performance data for use by the participants and the medical professionals who care for them. Znetix made these statements in a press release, authorized by Znetix's then CEO on January 19, 2001, when the HMC Defendants were continuing to offer and sell HMC and Znetix securities to investors. Znetix posted and continues to post the statement on its Internet website located at www.znetix.com. Znetix also included the press release in a publicly available filing with the Commission. Znetix has not performed the activities listed above.



c. That investor funds would be used for manufacturing/ distributing and IPO related costs. Instead, Lawrence and Claflin knowingly and intentionally misappropriated at least $16.3 million of investor funds by making payments for the benefit of Lawrence ($8.51 million), Claflin ($2.54 million), the Relief Defendants ($3.20 million) and others ($2.13 million). From 1997 to 2001, Lawrence spent, among other things, $3.1 million in purchasing more than 23 automobiles and several boats for himself, $330,000 on an engagement ring for relief defendant Gray, and transferred $2 million to Claflin.



d. Following the sales of securities to investors, the HMC Defendants made further oral misrepresentations by (a) repeatedly reassuring investors that the Znetix IPO was imminent; (b) representing to the investors that the Znetix IPO was in the "the final stages of SEC review"; (c) touting the alleged ongoing business activities of Znetix through purported association with large investors and high profile corporate sponsorships. Because there are no significant business activities and no IPO is imminent, these representations are false.



29. All of the above representations were false and the HMC Defendants knew or were reckless in not knowing their falsity.



FIRST CLAIM FOR RELIEF

OFFER AND SALE OF UNREGISTERED SECURITIES

Violations of Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. 77e(a) & 77e(c)

(Against Defendants HMC, Znetix, Cascade Pointe of Arizona, Cascade Pointe of Nevis, Lawrence, Claflin and Baird)

30. Paragraphs 1 through 29 are realleged and incorporated herein by reference. The HMC Defendants, the Cascade Defendants, and each of them, by engaging in the conduct described above, directly or indirectly, made use of means or instruments of transportation or communication in interstate commerce or of the mails, to offer to sell or to sell securities, through the use or medium of any prospectus or otherwise, and carried or caused to be carried such securities through the mails or in interstate commerce for the purpose of sale or for delivery after sale.



31. No registration statement has been filed with the Commission or has been in effect with respect to these securities. Nor were the offerings exempt from registration.



32. By reason of the foregoing, each of the HMC Defendants and the Cascade Defendants violated, and unless restrained and enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act.



SECOND CLAIM FOR RELIEF

FRAUD IN THE OFFER OR SALE OF SECURITIES

Violations of Section 17(a) of the Securities Act, 15 U.S.C. 77q(a)

(Against Defendants HMC, Znetix, Lawrence and Claflin)

33. Paragraphs 1 through 29 are realleged and incorporated herein by reference.



34. The HMC Defendants and each of them, by engaging in the conduct described above, directly or indirectly, in the offer or sale of securities, by the use of means or instruments of transportation or communication in interstate commerce or by use of the mails:



a. with scienter, employed devices, schemes or artifices to defraud;



b. obtained money or property by means of untrue statements of material fact or by omitting to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or



c. engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the purchasers of such securities;



in violation of Section 17(a) of the Securities Act.



35. By reason of the foregoing, each of the defendants violated, and unless restrained and enjoined, will continue to violate Section 17(a) of the Securities Act, 15 U.S.C. 77q(a).



THIRD CLAIM FOR RELIEF

FRAUD IN CONNECTION WITH THE

PURCHASE OR SALE OF SECURITIES

Violations of Section 10(b) of the Exchange Act,

15 U.S.C. 78j(b), and Rule 10b-5 thereunder,

17 C.F.R. 240.10b-5

(Against Defendants HMC, Znetix, Lawrence and Claflin)

36. Paragraphs 1 through 29 are realleged and incorporated herein by reference.



37. The HMC Defendants, and each of them, with scienter, by engaging in the conduct described above, directly or indirectly, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce, or of the mails:



a. employed devices, schemes or artifices to defraud;



b. made untrue statements of material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or



c. engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon other persons;



in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.



38. By reason of the foregoing, each of the defendants violated, and unless restrained and enjoined, will continue to violate Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.



PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:



I.

Issue findings of fact and conclusions of law that the HMC Defendants and the Cascade Defendants committed the alleged violations;



II.

Issue orders temporarily, preliminarily and permanently enjoining defendants HMC, Znetix, Cascade LLCs, Lawrence, Claflin and Baird, and their officers, agents, servants, employees and attorneys, and those persons in active concert or participation with any of them, who receive actual notice of the order by personal service or otherwise, and each of them, from violating Sections 5(a) and 5(c) of the Securities Act;



III.

Issue orders temporarily, preliminarily and permanently enjoining Defendants HMC, Znetix, Lawrence and Claflin, and their officers, agents, servants, employees and attorneys, and those persons in active concert or participation with any of them, who receive actual notice of the order by personal service or otherwise, and each of them, from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;



IV.

Issue a temporary restraining order and a preliminary injunction (a) freezing the assets of each of the defendants; (b) prohibiting defendants HMC, Znetix, Cascade LLCs, Lawrence, Claflin and Baird from destroying documents; (c) appointing a receiver over defendants HMC, Znetix, and the Cascade LLCs; and (d) ordering accountings from all defendants;



V.

Enter an order that each of the defendants disgorge all proceeds gained directly or indirectly from the illegal conduct of defendants HMC, Znetix, Cascade LLCs, Lawrence, Claflinand Baird, together with prejudgment interest thereon;



VI.

Enter an order directing defendants HMC, Znetix, Cascade LLCs, Lawrence, Claflin and Baird to pay civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act.



VII.

Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered, or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.



VIII.

Grant such other and further relief as this Court may determine to be just, equitable and necessary.



DATED: January 17, 2002 __________________________

Alka N. Patel

Attorney for Plaintiff

Securities and Exchange Commission



http://www.sec.gov/litigation/litreleases/lr17372.htm

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17372 / February 21, 2002

SECURITIES AND EXCHANGE COMMISSION v. HEALTH MAINTENANCE CENTERS, INC., ZNETIX, INC., CASCADE POINTE OF ARIZONA, LLC, CASCADE POINTE OF NEVIS, LLC, KEVIN L. LAWRENCE, DONOVAN C. CLAFLIN, CLIFFORD G. BAIRD, BAINBRIDGE HUMAN PERFORMANCE CENTERS, PLLC, KIMBERLY ALEXANDER, BONNIE M. COUCH, STACY GRAY, and VICKI L. LAWRENCE, Civil Action No. C 02-0153 P (W.D. Wash.)



FEDERAL COURT ORDERS PRELIMINARY INJUNCTION AND APPOINTS PERMANENT RECEIVER IN SEC ACTION, HALTING $74 MILLION SECURITIES FRAUD IN WASHINGTON STATE



On February 15, a federal judge in Seattle, Washington issued a preliminary injunction, in an action brought last month by the Securities and Exchange Commission ("Commission"), halting a $74 million securities fraud scheme by Kevin L. Lawrence ("Lawrence"), 36, of Bainbridge Island, Washington and his companies, Health Maintenance Centers, Inc. ("HMC") and Znetix, Inc. ("Znetix"). The court also placed a permanent receiver over HMC, Znetix and two LLCs allegedly created to funnel additional investor funds to these companies, Cascade Pointe of Arizona, LLC and Cascade Pointe of Nevis, LLC (collectively "Cascade"). HMC and Znetix, located on Bainbridge Island and in Seattle, purportedly developed and operated "medically integrated" health clubs.



The Commission's complaint alleges that the scheme induced more than 5,000 investors nationwide to invest with promises of (1) an initial public offering ("IPO") of Znetix occurring within a specific time (one month to three years) and with a specific price of $3 to $60 per share; (2) the existence of significant current operations of Znetix; and (3) the use of investor proceeds to fund HMC/Znetix operations and capitalize the Znetix IPO. The complaint further alleges that HMC/Znetix could not and did not go public. Znetix did not have significant current operations. A significant portion of investor proceeds, at least $16 million or 22%, did not go to fund company operations or fund an IPO. Rather, these funds went to support the lavish lifestyle of Lawrence, his right-hand man Donovan Claflin ("Claflin"), and their friends and family in the form of luxury cars, expensive boats, prime real estate and precious jewelry.



The Court preliminarily enjoined HMC, Znetix, Lawrence and Claflin from violating the antifraud and registration provisions of the federal securities laws. It also preliminarily enjoined Cascade and its managing director, Clifford G. Baird ("Baird"), from violating the registration provisions. Additionally, the Court continued the asset freeze over all of the named defendants: HMC, Znetix, Cascade, Lawrence, Claflin, Baird, and relief defendants Bainbridge Human Performance Centers, PLLC ("BHPC"), Kimberly Alexander ("Alexander"), Bonnie M. Couch ("Couch"), Stacy Gray ("Gray") and Vicki L. Lawrence ("Vicki Lawrence"). Finally, the Court prohibited the destruction of documents by HMC, Znetix, Cascade, Lawrence, Claflin and Baird and ordered accountings by HMC, Znetix, Cascade, Claflin, BHPC, Alexander, Couch, Gray and Vicki Lawrence.



http://www.sec.gov/litigation/litreleases/lr17587.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17587 / June 26, 2002

SECURITIES AND EXCHANGE COMMISSION v. HEALTH MAINTENANCE CENTERS, INC., ZNETIX, INC., CASCADE POINTE OF ARIZONA, LLC, CASCADE POINTE OF NEVIS, LLC, KEVIN L. LAWRENCE, DONOVAN C. CLAFLIN, CLIFFORD G. BAIRD, BAINBRIDGE HUMAN PERFORMANCE CENTERS, PLLC, KIMBERLY ALEXANDER, BONNIE M. COUCH, STACY GRAY, and VICKI L. LAWRENCE, Civil Action No. C 02-0153 P (W.D. Wash.)



COMMISSION SETTLES $91 MILLION SECURITIES FRAUD WITH COMPANIES BASED IN WASHINGTON STATE, ARIZONA, AND NEVIS AND WITH CEO'S ESTRANGED WIFE



On June 6, 2002, the Securities and Exchange Commission settled fraud and registration charges with Znetix, Inc., and Health Maintenance Centers, Inc. ("HMC"), based on Bainbridge Island, Washington; and registration charges against Cascade Pointe of Arizona, LLC, and Cascade Pointe of Nevis, LLC (collectively "Cascade"). Additionally, the Commission settled with relief defendants Bainbridge Island-based Bainbridge Human Performance Centers, PLLC ("BHPC") and Vicki Lawrence, 28, estranged wife of Znetix and HMC CEO Kevin Lawrence. As alleged in the Commission's complaint filed on January 23, 2002, Znetix, HMC and Cascade raised more than $91 million from more than 5,000 investors nationwide with false promises of an imminent, lucrative initial public offering of Znetix.



Znetix and HMC, without admitting or denying the Commission's allegations, consented to the entry of a judgment, entered by the Federal District Court in Seattle, permanently enjoining them from future violations of the antifraud and securities registration provisions of the federal securities laws (Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder). Cascade, without admitting or denying the Commission's findings, consented to the entry of a judgment permanently enjoining it from future violations of Sections 5(a) and 5(c) of the Securities Act. Znetix, HMC, Cascade, BHPC and Vicki Lawrence agreed to disgorge all ill-gotten gains from the stock offerings. Among Vicki Lawrence's ill-gotten gains are three parcels of prime Washington state real estate, two luxury automobiles and one fire truck. Previously, on February 15, 2002, the Court appointed a permanent receiver over Znetix, HMC, Cascade and BHPC. In the event that the permanent receiver collects more than $91 million from the companies, Znetix, HMC, Cascade and BHPC agreed to a penalty not to exceed $91 million.



The Commission's case is pending against the remaining defendants, Kevin L. Lawrence, Donovan C. Claflin, Clifford G. Baird, Kimberly Alexander, Bonnie M. Couch and Stacy Gray.



http://www.sec.gov/litigation/litreleases/lr17613.htm

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17613 / July 15, 2002

SECURITIES AND EXCHANGE COMMISSION v. HEALTH MAINTENANCE CENTERS, INC., ZNETIX, INC., CASCADE POINTE OF ARIZONA, LLC, CASCADE POINTE OF NEVIS, LLC, KEVIN L. LAWRENCE, DONOVAN C. CLAFLIN, CLIFFORD G. BAIRD, BAINBRIDGE HUMAN PERFORMANCE CENTERS, PLLC, KIMBERLY ALEXANDER, BONNIE M. COUCH, STACY GRAY, and VICKI L. LAWRENCE, Civil Action No. C 02-0153 P (W.D. Wash.)



CEO'S MOTHER AND SISTER DEFY COURT ORDER IN $91 MILLION SECURITIES FRAUD ACTION; COURT HOLDS THEM IN CONTEMPT



On July 9, 2002, the United States District Court in Seattle held in contempt two of the defendants in a $91 million securities fraud action brought by the Securities and Exchange Commission and ordered them to turn over a Cadillac Escalade and a $57,000 Dodge Ram Truck immediately or pay a $1,000 fine that would double each day. The next day, the two defendants -- Bonnie M. Couch, 60, of Bainbridge Island, Washington and Kimberly Alexander, 39, of Poulsbo, Washington, the mother and sister of Health Maintenance Centers, Inc. ("HMC") and Znetix Inc.'s CEO -- turned over the luxury automobiles to the court-appointed receiver.



Previously, the SEC filed an emergency action on January 23, 2002, against Znetix, HMC, three related companies, their controlling executives, and several family members of the CEO, alleging that the executives falsely promised investors lucrative profits from the imminent initial public offering of Znetix. In connection with that emergency action, the Court ordered all defendants to turn over control of their automobiles, watercraft and aircraft to the court-appointed receiver.



In April 2002, two of the defendants, Couch and Alexander, defied the Court's order and refused to turn over the Cadillac Escalade and Dodge Ram. As a result, the SEC on April 30, 2002 filed a motion to hold Couch and Alexander in contempt of court. At a hearing on July 9, the Court found that Couch and Alexander had failed to comply with the Court's prior order and held them in contempt.