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