Securities Newsroom

Znetix Stock Salesmen Convicted Of Fraud And Conspiracy

After a seven-week trial, a federal jury in Seattle returned guilty verdicts finding three Znetix stock salesmen guilty of multiple felonies relating to their sale of stock in Znetix, Inc., Health Maintenance Centers, Inc., Cascade Pointe LLC, and affiliated entities.

The three defendants are LARRY L. BEAMAN, 62, of Ridgefield, Washington; MICHAEL J. CULP, 33, of Bothell, Washington; and HARVEY W. KUIKEN, 52, of Newcastle, Washington. BEAMAN was convicted of 26 felony counts, including Conspiracy, Securities Fraud, Wire Fraud, and Money Laundering. CULP was convicted of 12 counts, including Conspiracy, Securities Fraud, and Money Laundering. KUIKEN was convicted of 14 counts, including Conspiracy, Securities Fraud, and Engaging in Unlawful Monetary Transactions.

The three were originally indicted on March 26, 2003. Sentencing is scheduled for September 17, 2004, before United States District Judge Marsha J. Pechman in Seattle. The Conspiracy and Wire Fraud offenses carry maximum sentences of 5 years imprisonment. Securities Fraud and Engaging in Unlawful Monetary Transactions carry maximums of 10 years. Money Laundering carries a maximum of 20 years. Sentences on each count of conviction may be imposed to run consecutively.

The charges against BEAMAN, CULP, and KUIKEN arose out of the government's investigation of the offer and sale of over $90 million of securities by Znetix, Inc., Health Maintenance centers, Inc., Cascade Pointe, LLC, and affiliated entities. The conspiracy's ringleader was KEVIN L. LAWRENCE, who entered guilty pleas in July, 2003, to Securities Fraud, Wire Fraud, and Conspiracy and is currently serving a 20-year prison term.

Over the course of about seven years, LAWRENCE and his co-conspirators, including BEAMAN, CULP, KUIKEN, and six additional defendants who previously entered guilty pleas – DONAVON CLAFLIN, KEVIN McCARTHY, CLIFFORD BAIRD, STEVEN REIMER, JAMES WUENSCHE, and ALFONSO D. LACSON, JR. – defrauded thousands of investors out of approximately $91 million through a massive conspiracy 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. Two additional defendants, TIMOTHY MOODY and ALEX LACSON, pleaded guilty to related charges, although ALEX LACSON is attempting to withdraw his guilty plea.

The co-conspirators used funds received from investors for their own personal benefit, including for the purchase of luxurious homes, cars, boats, merchandise, and travel. For example, defendant BEAMAN used investor funds to purchase over $100,000 of jewelry and to have over $200,000 worth of landscaping done at his residence. Defendant CULP used investor funds to obtain new cars and purchase a $1.1 million residence in Woodinville, Washington. Defendant KUIKEN used investor funds to purchase gemstones, towards a down payment on a multi-million dollar view property in Newcastle, and for two chartered Leer jet trips.

The evidence at trial showed that defendants BEAMAN, CULP, and KUIKEN together received over $7.7 million directly from investors but sent only about $2.7 million to Znetix, HMC, or Cascade Pointe. The evidence at trial also showed that BEAMAN, CULP, and KUIKEN each controlled a shell company in the Carribean island of Nevis, and that Nevis companies submitted fraudulent documents to Cascade Pointe to make that company falsely appear to be a wealthy venture capital firm that would fund the continued operations of HMC and efforts to resolve the securities regulatory issues of HMC.

After the State of Washington's Department of Financial Institutions issued a Cease and Desist Order in April, 2001, directing HMC and its agents to stop selling securities illegally, Cascade Pointe was secretly formed by LAWRENCE and McCARTHY to continue the illegal fundraising. Cascade Pointe raised over $10 million from May, 2001, until the Court granted the SEC's January, 2002, request to freeze accounts and appoint a receiver. The Receiver has recovered some of the money lost by investors, including through auctions and by pursuing civil actions, such as a lawsuit against the Seattle law firm that represented HMC and LAWRENCE.

The FBI and the Office of the United States Attorney have worked closely with the Receiver to seize real estate, jewelry, cars, and other assets through criminal and civil asset forfeiture actions. For example, the Office of the United States Attorney recently settled a civil asset forfeiture action against Richard T. Gray, of St. Louis, Missouri, which calls for Gray to return $600,000 that he received from LAWRENCE.

The fraud on investors was facilitated, in part, by the expenditure of millions of dollars of investors' funds to launch an advertising campaign that included placing a large sign at the Seattle Mariner's Safeco Field, and having sports stars such as Shaquille O'Neal wear a Znetix cap after the Los Angeles Lakers' 2001 NBA championship. The advertising campaign was designed only to sell more stock, as Znetix had no products or services to offer and little or no revenue. Znetix had been touted as a company engaged in providing cutting-edge health and fitness products and services.

United States Attorney John McKay noted that the conspiracy and scheme that was charged in the case is "one of the largest and most egregious frauds ever perpetrated on investors and creditors in Washington." Mr. McKay added "The guilty verdicts in 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."

An investigation of other individuals associated with Znetix, HMC, Cascade Point is ongoing.

This case was investigated jointly by the Federal Bureau of Investigation, the State of Washington Department of Financial Institutions, Securities Division, the Securities and Exchange Commission, the Internal Revenue Service, and the securities enforcement authorities in several other states, including the states of Illinois, Hawaii, Wisconsin, and Oregon. Mr. McKay expressed his gratitude in particular for the work of the State of Washington Department of Financial Institutions, Securities Division, which took the lead in analyzing over 600 bank accounts used in the course of the conspiracy to defraud investors.

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