Associated Press
SEATTLE — The Securities and Exchange Commission has sued two Seattle-area companies, alleging they defrauded investors of more than $79 million and used some of the money to buy lavish cars, homes and jewelry.
The lawsuit filed Wednesday stems from the largest stock fraud investigation in Washington state’s history.
In a lawsuit filed Wednesday, the SEC accused Seattle-based Znetix Inc. and Bainbridge Island-based Health Maintenance Centers of misleading more than 5,000 investors, including some Puget Sound church congregations.
The suit also names Cascade Pointe of Arizona; Cascade Pointe of Nevis; Health Maintenance Centers and Znetix founder Kevin L. Lawrence; Health Maintenance Centers treasurer Donovan C. Claflin; and Scottsdale, Ariz., resident Clifford G. Baird.
"It’s a huge case and hard to get your arms around," said Deborah Bortner, state securities administrator.
The SEC also won a temporary restraining order to freeze the companies’ assets and prohibit them from destroying documents. It expires Jan. 31, when additional details in the case are to be heard in U.S. District Court here.
Attempts to reach Znetix and Health Maintenance Centers Thursday were unsuccessful.
In an interview last April, Lawrence said the companies planned to create a new breed of medical centers that would combine fitness clubs with preventative care and medicine.
Znetix at the time planned to acquire Health Maintenance Centers and do an initial public offering of $3 to $60 per share, the newspaper said.
To market the business, the company backed a hydroplane team, put up a sign at Safeco Field and persuaded Shaquille O’Neal to wear a Znetix hat after his team, the Los Angeles Lakers, won the NBA championship last year.
But instead of going public, the SEC’s lawsuit alleges, Lawrence used some of the investors’ money for a $14 million shopping spree, buying 23 cars, $2 million in homes, $1 million in boats and jewelry that included a $330,000 engagement ring.
The suit also alleged that Claflin misappropriated $2 million of investment money for personal use.
Claflin and Lawrence invoked their Fifth Amendment right against self-incrimination when the SEC questioned them, the lawsuit says.
Paul Worbey, 43, of Sammamish invested $50,000 in Health Maintenance Centers. But after reading about the state’s investigation of the company, he persuaded the company to refund his money in September.
"At the time of the Internet boom, it sounded very appealing, but over time with no information coming and no ability to get information, it became worrisome," Worbey said. "If there is no information, that’s bad, and if it sounds too good to be true, it is."
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