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& Technology: Friday, January 25, 2002 Seattle firm, partners sued in $90 million fraud case By Gina Kim Seattle Times staff reporter The company's Web site promises a "breakaway health experience" that can transform lives and launch "new lifestyle practices." Znetix's Web site says the company does this through integrating medical and fitness programs with computerized health equipment and software that keeps performance data on every client. But the Securities and Exchanges Commission (SEC) says the Seattle company has never designed or manufactured computerized medical equipment or created any software. Millions of dollars raised by the company and its partners — Bainbridge Island-based Health Maintenance Centers, Cascade Pointe of Arizona and Cascade Pointe of Nevis, a Caribbean island — were spent not on research and development, but on luxury cars, homes, boats and jewelry. The SEC sued Znetix and its partners Wednesday in U.S. District Court in Seattle, claiming the companies cheated 5,000 investors out of more than $90 million. It is the biggest fraud case in state history. "When you lie to investors and take their money and use it for your own personal gain, that's conduct that's egregious," said Michele Wein Layne, deputy assistant regional director of the SEC in Los Angeles. Health Maintenance Centers began selling shares to private investors in 1995, raising about $74 million, court papers say, and the Cascade Pointe companies have collected at least $17 million. The state ordered Health Maintenance Centers to stop selling shares in April. The Cascade Pointe companies were created a month later and started selling its shares, SEC officials said. Investors were promised they would get four shares of Znetix for each share of Health Maintenance. Most of the investors thought Znetix was on the brink of going public and that they could make money on their shares after the initial public offering, Layne said. But instead of preparing for the public offering, company executives used more than $16.3 million to support their own lavish lifestyles, court papers say. Bank records and receipts show that Kevin L. Lawrence, 36, of Bainbridge Island, founder of Health Maintenance Centers and Znetix, spent more than $2 million on 23 luxury automobiles, including a Dodge Viper and Lamborghini; about $500,000 on cars for family and friends; $1.7 million on homes; $1 million on boats; and $330,000 on an engagement ring for his fiancée, court papers said. Lawrence could not be reached yesterday. The state Department of Financial Institutions found out about the investments last year, when hundreds of investors called in to ask about the company. Znetix and Health Maintenance Centers never provided them with a prospectus, financial statements or information about how the money was to be used, said Deb Bortner, the department's director of securities. "We thought at first that it was a private offering to a small group of sophisticated investors," Bortner said. "But when we started finding out that there were many more people who were involved, we decided, 'We've got to stop this thing.' " A temporary restraining order was issued Wednesday, freezing the assets of Znetix and its partner companies. A hearing is scheduled for Jan. 31. Also named as defendants are Bainbridge Human Performance Centers; Donovan Claflin, treasurer of Health Maintenance Centers; Clifford Baird, managing director of the Cascade Pointe companies; and Lawrence's sister, Kimberly Alexander; mother, Bonnie M. Couch; fiancée, Stacy Gray; and estranged wife, Vicki L. Lawrence. |
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