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Investors reflect on HMC chargesSome rally to the company's defense as the state investigates.

"Investors who sunk some $9 million into Health Maintenance Centers, Inc., were chasing a much bigger rainbow than a workout facility on Bainbridge Island.Their ultimate dream, some say, was a piece of Znetix, Inc., a corporate mother-ship that would gather in HMC and other subsidiaries, become publicly traded and repay the original investors many times over.What Znetix has done is establish a high profile, sponsoring two racing hydroplanes last year, throwing a lavish party in Los Angeles and even persuading Super Bowl-winning quarterback Trent Dilfer to wear a Znetix hat for his post-game interview.What Znetix has not done is become publicly traded, although that is still being promised to the HMC investors. I got a call this week from the investor relations people saying 'great news today,' Znetix is buying HMC, said one investor who spoke to the Review only on the condition that the investor's name not be used.Znetix promised to send a document by which he could elect to convert HMC shares to Znetix shares, the investor said.But then they said, 'Oh by the way, we want to let you know that there will be some negative press this week...'The negative press came in the form of stories Wednesday in the Review and Thursday in the Seattle Post-Intelligencer concerning actions taken against HMC by state securities regulators.In an order dated April 9, the Securities Division of the State Department of Financial Institutions issued a summary cease-and-desist order directing Bainbridge-based HMC and its employees to stop selling HMC stock. The order charged that the stock was never properly registered as required by state law, and also alleges that sales were achieved through misrepresentations of material fact.Regulators say that investors did not receive a prospectus or any other required financial information, and that the omission of the required information constituted misrepresentation.We have been aware of the company for a year or more, securities division attorney Martin Cordell told the Review this week, but we are just beginning our investigation. It's a rather large case involving hundreds of investors and millions of dollars.In fact, regulators say HMC raised $9 million from 1,100 investors in 24 states, 600 of them in Washington.The order runs against HMC, against its president, Kevin L. Lawrence of Bainbridge Island, and against HMC's employees. It does not run against Znetix, a separate corporation with an office in Seattle, although one of the allegations against HMC and its principals was the alleged failure to provide sufficient information about Znetix.Znetix has registered its stock with state officials, and is not named in the state's cease-and-desist order.Neither Lawrence nor other company officials would return repeated calls seeking comment this week. On Tuesday, a spokeswoman said company attorneys would issue a press release, but nothing was received by the Review. When called Friday to ask if the release would be forthcoming, the spokeswoman hung up. Investors critical of the company, who spoke to the Review only on the condition of anonymity, said that the initial pitch was for investments in HMC itself.We were given a tour of the facilities, told that they would have facilities all over and would go on NASDAQ, said one. We were told about property in Oregon and Hawaii.But shortly thereafter, the focus shifted to what was called Project X, which became Znetix, a company Lawrence formed in 1999. While Znetix has done high-profile advertising, it is far from clear what its product is or what is planned.Znetix was supposed to have three subsidiaries, said one investor - one that would own exercise facilities, one that would manufacture equipment, and another that would do medical research.And Znetix may have made some moves towards establishing such a structure. Last September, it acquired a St. Louis-based company called TBG Development. The TBG web site says that company specializ[es] in developing, financing and managing hospital-affiliated, medically-based health and fitness centers.Then in January 2001, Znetix filed a document with the federal Securities and Exchange Commission announcing it would acquire HMC, Inc., whose principal operational asset is the workout facility on Madison Avenue. But as investors now note, it was never clear exactly what Znetix would add to the mix.We were told they had proprietary software for monitoring workouts that would be available to health clubs and clinics and could be accessed on-line, one investor said. But everybody and his brother has that.Not all investors are critical. In an email to the Review Friday, investor Robert Norton of Twin Falls, Ida., said, I am indeed a shareholder of HMC and feel deeply proud and fortunate to be associated in any fashion with this endeavor.The leadership of this company will soon be showcasing leading technology that will lead this nation and other peoples of other nations into a new era of health care and health care management.I would like to go on record as letting you know this group of HMC investors stands as a unified group that will stand behind Mr. Kevin Lawrence, he said. Another investor, writing from Madison, Wisc., said he is pleased with the way the company has developed, adding:To be invested with a company that could change my life is exciting, but even more exciting to me is knowing that I share with many other shareholders the desire and aspirations of sharing our future gains with those around us, within our various communities and non-profit organizations.The company has sponsored several Bainbridge community events, including a fitness run and a golf tournament. But some outside observers noted what appeared to be an unusual vagueness about what else Znetix did.The company sponsored a New Year's Eve bash at the Four Seasons Hotel in Los Angeles, and invited a list of celebrities including businessman Lee Iacocca and former football star Eric Dickerson. But when a reporter from the Los Angeles Business Journal asked a company official about the company's line of business and its prospects, the official reportedly refused comment.Not only do [Znetix officials] not want to talk about the party, they don't want want to talk about their company either, which is odd given the exposure they are likely to generate from their fete, Business Journal reporter John Brinsley wrote at that time.Still, in the heady atmosphere last year of IPOs creating a millionaire a minute, several investors say that anything seemed possible - even if a company's product might not be defined with crystal clarity.I'd done well enough in the market that I thought what the hell, said one investor. If I quadruple my money in this, it's instant retirement.That investor was told that Znetix would go public last spring, or at the latest by mid-summer. If the share price hit $50 - one figure investors say was was suggested - the profits would indeed have been phenomenal. Investors say they were told that they would get four Znetix shares for each $1 HMC share. That would make a $5,000 HMC investment - the minimum permitted - worth an even $1 million.But so far, the promised public offering has not occurred. It didn't happen, but nobody called, an investor said. The investor said the going-public date then became right before the election, and then as soon as certain needed data was forwarded to the federal Securities and Exchange Commission.One constant, the investors said, was a lack of information.I heard that investors who put in over $100,000 got a prospectus, said one investor, but if you put in less, you didn't get anything.Investors said they received documents stating that shares had been issued, but nothing else in writing. More distressing, the investors say, is that some questions were greeted with the threat of a defamation lawsuit, which is why they are unwilling to have their names used.I wanted a prospectus and an explanation of where the money was going, said one investor, who said he was concerned about the highly visible advertising spending and other concerns.The response was a letter accusing him of making defamatory statements about the company and its principals, and threatening suit.I'm paranoid because of the threats of lawsuits, said another. But while skeptical, he hasn't lost faith entirely.I'm still hoping this will go, he said. "

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