UNITED STATES ATTORNEY'S OFFICE
Western District of Washington

PRESS ROOM

July 29, 2003

RINGLEADER OF ZNETIX STOCK FRAUD SCAM PLEADS GUILTY

John McKay, United States Attorney for the Western District of Washington; R. Scott Crabtree, Acting Special Agent in Charge, Federal Bureau of Investigation; Randall Lee, Regional Director, Securities and Exchange Commission Pacific Regional Office; Steve Pasholk, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division; and Helen Howell, Director, State of Washington Department of Financial Institutions, announced today that on July 28, 2003, KEVIN L. LAWRENCE, age 37, of Bainbridge Island, Washington, pleaded guilty before United States District Judge Ronald B. Leighton in Tacoma, Washington, to three felony criminal offenses: (1) Conspiracy to Commit Securities Fraud, Wire Fraud, Mail Fraud, Unlawful Sale of Unregistered Securities, Money Laundering, and Engaging in Monetary Transactions with Proceeds of Unlawful Activity; (2) Securities Fraud; and (3) Wire Fraud. The plea agreement filed in Court on July 28, 2003, provides that LAWRENCE and the government will recommend that the Court impose a sentence of 20 years imprisonment. There is no parole in the federal criminal justice system.

Sentencing will be in Seattle on October 31, 2003, before United States District Judge Marsha J. Pechman, who is handling all of the criminal and civil cases associated with Znetix. As part of his plea, LAWRENCE has agreed to waive any right to appeal, and to cooperate fully with the government and the receiver appointed as part of the SEC's case in identifying assets. LAWRENCE also agreed to forfeit a number of valuable assets that were previously seized by the government, including Rolex watches, several boats, luxury automobiles, including a Mercedes, Hummers, and two DeThomaso Panteras, and a Ducati motorcycle. The proceeds from the sale of these items and other assets recovered by the government and the receiver will ultimately be distributed to victims of the offense.

According to Court records:

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. LAWRENCE admitted as part of the plea agreement that over the course of about 7 years he intentionally, knowingly, and willfully defrauded thousands of investors out of up to $100 million through his leadership of a massive conspiracy and scheme to defraud involving false representations and failures to disclose truthful and accurate information in connection with the sale of the securities of Znetix, Inc., Health Maintenance Centers, Inc., Cascade Pointe, LLC, and affiliated entities. LAWRENCE further admitted that he intentionally, knowingly, and willfully used the funds received from investors for his own personal use and benefit and for the use and benefit of his coconspirators and others, including for the purchase of luxurious homes, cars, boats, merchandise, and travel. LAWRENCE further admitted that he intentionally, knowingly, and willfully made false statements and directed others to make false statements to the State of Washington's Department of Financial Institutions, Securities Division, and to the United States Securities and Exchange Commission. LAWRENCE carried out the fraud on investors by, among other things, falsely telling them that Znetix would go public and be traded on NASDAQ at much higher prices than the investors paid for the stock. LAWRENCE represented to one investor, for example, that a $400,000 investment in June 2000 would be worth $19.2 million to $32 million by the end of that year.

Five other defendants, DONAVON CLAFLIN, KEVIN McCARTHY, CLIFFORD BAIRD, JAMES N. WUENSCHE, and TIMOTHY T. MOODY have previously entered guilty pleas in connection with the Znetix case. Six other defendants, STEVEN J. REIMER, MICHAEL J, CULP, LARRY L. BEAMAN, HARVEY W. KUIKEN, ALEX LACSON, and ALFONSO LACSON, JR., are awaiting trial on a 114-count indictment charging conspiracy, securities fraud, wire fraud, mail fraud, and money laundering.

Mr. McKay 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. Mr. McKay stated that the government is pleased that LAWRENCE has chosen to take responsibility for his enormous crimes. The disposition of this case 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.

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, and Oregon. Assistant United States Attorneys Jeffrey B. Coopersmith, Ye-Ting Woo, and Richard E. Cohen, and Special Assistant United States Attorney Todd Brilliant are prosecuting the case.

As part of its victim notification responsibilities, the United States Attorney's Office has been working with the receiver to notify individuals who are believed to be victims of the scheme led by LAWRENCE. More information regarding this case, including the plea agreement for LAWRENCE (as soon as it is available) and other court documents and press releases, are available by following the victim-witness and Znetix links on the web site for the United States Attorney's Office located at www.usdoj.gov/usao/waw. Additional information is available on the receiver's web site at www.znetix.com.

For further information please contact Jeffrey B. Coopersmith, Ye-Ting Woo, or Richard E. Cohen, Assistant United States Attorneys, or John Hartingh, Executive Assistant United States Attorney, at (206) 553-4110.