Department of Financial Institutions
PO Box 41200, Olympia, Washington 98504-1200
Phone:(360)902-8760; Toll-free: 1-877-RING DFI (1-877-746-4334); FAX:(360)586-5068
January 24, 2002
Court order halts securities sales of HMC, Znetix, freezes firms' assets
Two Bainbridge Island companies, Health Maintenance Centers, Inc. (HMC), and
Znetix, Inc. (Znetix), along with their founder, Kevin L. Lawrence, and other associated persons were enjoined yesterday from violating the registration and fraud sections of the federal securities acts.
Kevin Lawrence is the president of HMC and Chairman of the Board of Znetix. The order was entered in United States District Court for the Western District of Washington enjoining the scheme and freezing the assets of HMC, Znetix and others named in the action.
The Washington Securities Division of the Department of Financial Institutions, working with the Securities and Exchange Commission, the Federal Bureau of Investigation, the U.S. Attorney’s Office for the Western District of Washington, and the Internal Revenue Service are continuing to investigate.
According to documents filed in court, the $74 million scheme of HMC and Znetix, (originally organized as “Project X”), involved “medically integrated” health and fitness facilities.
The purported business model provided health and fitness services as well as medical and fitness research and the design, manufacture and sale of training equipment.
HMC and Znetix offered and sold HMC and Znetix common stock through officers and directors of the companies, employees or sales agents, and a "friends-and-family" network.
The unregistered offerings of HMC and Znetix stock began in 1995, and the total number of investors is estimated to be more than 5,000 across the nation.
Sales of stock were in part driven by the apparent business success of Znetix, which sponsored many high-profile corporate sponsorships and publicity events. The federal action alleges that the company did not in fact conduct ongoing business activities. Many investors were also induced to purchase HMC stock because they were told that they would be able to exchange each of their HMC shares purchased for $1 per share for four shares of Znetix, a company they were told would soon go public at a share price ranging anywhere from $3 to $60 and acquire HMC. Many were also informed that the time frame for this was a matter of months. In fact, Znetix has not yet gone public, nor have the companies merged. Finally, officers of Znetix should have been aware that, for many reasons, an initial public offering could not be accomplished in such a short time.
In addition to being misled about the prospects or timing of the four-for-one exchange, it is alleged that investors were not adequately informed of the use of their funds.
Instead of financing HMC and Znetix's purported business of developing and operating "medically integrated" health and fitness clubs and completing an initial public offering for Znetix, they funded Lawrence's personal lifestyle.
Lawrence has allegedly used nearly $14 million in investor funds to buy luxurious homes or real estate, exotic cars, boats, and other items for himself, family members, and friends, while others benefited from the receipt of gifts or misappropriations of investor funds.
Read the Litigation Release from the Securities and Exchange Commission and the full text of the SEC Complaint in this matter.
Also see Securities Division order SDO-26-01.