1 Lamborghini Diablo
4 Ferraris
5 Hummers
3 Dodge Vipers
1 Custom-built Pantera
7 Mercedes
5 Land Cruisers
2 Land Rovers
2 Cadillac Escalades
5 motorcycles
11 off-road vehicles
20 boats and Jet Skis
Znetix inquiry: Lots of cars, no cash
Receiver logs assets in what SEC calls $91 million scheme
Saturday, March 9, 2002
By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER
A Cartier watch with diamonds.
A 22-foot Bombardier speedboat.
And a 2001 Ferrari 360.
Those are among the 47 cars, 20 personal watercraft and seven pieces of jewelry that a court-appointed receiver has turned up in an investigation of Znetix Inc., Health Maintenance Centers Inc. and its founder Kevin Lawrence -- a Bainbridge Island man accused by the Securities and Exchange Commission of organizing a $91 million stock scheme.
The inventory report is the first public document issued by Michael Grassmueck -- who took control of the assets of Znetix, HMC, Cascade Pointe, Lawrence and others last month by order of U.S. District Judge Marsha Pechman.
While Grassmueck has found plenty of vehicle titles and more than 100 pieces of art on Bainbridge Island, he has yet to turn up much cash.
Grassmueck has identified 110 Znetix and Cascade Pointe bank accounts in the United States and the Caribbean. But according to the report, most have no money in them. A total of $47,156 in Znetix accounts and $20,000 in one Cascade account have been found, he said in the report this week.
The SEC alleges in a Jan. 23 lawsuit that Lawrence and others bilked more than 5,000 investors out of $91 million and used much of the money to fuel a "grossly lavish lifestyle." Among other things, the suit alleges that Lawrence used investor money to buy homes, cars, boats and a $330,000 engagement ring for his fiancée.
State regulators call it the largest stock fraud ever to originate in the state.
Lawrence, in a court filing last month, denied most of the claims. His attorney declined to discuss the lawsuit but said that Lawrence is cooperating with the receiver.
"Mr. Lawrence has instructed me to cooperate with the receiver to try to see that the receiver gets any and all assets that might be available so that ultimately, if this money is returned to investors, they get the maximum return," said attorney Robert Chadwell.
Attorneys for Znetix could not be reached for comment.
SEC attorney Nicolas Morgan said the initial findings from the receiver confirm what is alleged in the lawsuit. A settlement has not been reached with any of the defendants and the matter at this time is headed to trial, Morgan said.
The FBI and U.S. Attorney's Office also are investigating.
Grassmueck has been working with Financial Forensics, a forensic accounting firm based in Lake Oswego, Ore., and James Murphy Co., a Kenmore-based auctioneer, to sort through the assets and analyze corporate records.
But that appears to be a tough task, according to the report.
"Znetix and Cascade's funds were managed with apparent disregard for basic bookkeeping and accounting mechanisms," Grassmueck writes in the report. "Consequently, the typical financial records ordinarily found at a business are virtually non-existent. The limited records that exist were prepared after the fact and it is difficult to assess the level of reliability."
He goes on to say that officers of Znetix and Cascade have not produced personal accountings and have asserted their Fifth Amendment rights against self-incrimination, hampering the ability to trace assets.
The companies also operated under at least 10 different entities, Grassmueck reported.
Demands are being made on defendants to turn over the collection of boats and cars, which includes five Hummers, four Ferraris, three Dodge Vipers, two Cadillac Escalades and a Lamborghini Diablo.
Most of the vehicles are registered to Lawrence, according to the report.
The U.S. attorney and FBI are also attempting to seize vehicles as part of a separate criminal investigation, Grassmueck said.
"The U.S. attorney's actions and FBI's actions at this point have been their own," said Grassmueck in an interview with the Seattle Post-Intelligencer.
Grassmueck declined to discuss the scope of the case, saying that a more detailed report on Znetix's operations, cash flow and accounting will be released in the next 30 days.
The next report will look "much more broadly" into "the history of what went on here," Grassmueck said.
In addition to the court filing, Grassmueck yesterday posted three letters on the Znetix Web site (www.znetix.com) explaining his actions to investors, creditors and former employees.
The letters to investors and creditors explain his role as receiver and the ongoing legal action. Grassmueck also wrote that it is too early to estimate "the timing or the amount that may ultimately be distributed to creditors and investors."
The letter to former Znetix employees indicates that the company's health coverage was behind by $143,000 in December and has lapsed. Since Znetix/HMC have no insurance policy, former employees are not eligible for COBRA insurance, he writes.
"I am painfully aware of the unfortunate and traumatic experience this may place some of you in," Grassmueck writes. "Unfortunately, the receiver can do no more than use the tools that he has at the time of his appointment, and unfortunately cash was not one of those tools available to me."
As for the HMC gym located in a former bowling alley on Bainbridge Island, Grassmueck said the facility remains closed for now.
ZNETIX ASSETS
The following are some assets owned by Znetix founder Kevin L. Lawrence and five others.
1 Lamborghini Diablo
4 Ferraris
5 Hummers
3 Dodge Vipers
1 Custom-built Pantera
7 Mercedes
5 Land Cruisers
2 Land Rovers
2 Cadillac Escalades
5 motorcycles
11 off-road vehicles
20 boats and Jet Skis
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P-I reporter John Cook can be reached at 206-448-8075 or johncook@seattlepi.com |
