What's next for HMC health club?

As financial problems mounted, Human Performance Center officials tried to enforce secrecy among employees even while failing to pay them, two former gym employees said last week.

And what was once a substantial organization with more than 20 employees – many with advanced degrees – was left a skeleton crew, they and current club members say.

“They were so paranoid, they were always making you sign forms promising not to talk to anybody about anything,” said Chris Tucker, a professional trainer who was lured away from the National Basketball Association’s Cleveland Cavaliers to be what he calls “the point man” for the club’s sports medicine effort.

HPC and the related Health Maintenance Centers business appeared to be an ideal employer, Tucker said, paying very generous salaries. Another employee recalled a travel perk – a three-day Las Vegas outing last April.

“We flew to Las Vegas on a Friday morning, spouses included, and stayed at the Four Seasons,” said the employee, who asked not to be identified on advice of counsel. The employee sat with HMC founder Kevin Lawrence at a dinner event that weekend, and heard a two-hour discussion of the company’s prospects, and “they made it sound like a great program.”

But Tucker was laid off in January, “because they didn’t have enough money to pay me,” he said. He has filed a lawsuit against HMC for unpaid wages.

Company officials did not return calls to the Review seeking comment.

Federal regulators last week sued Lawrence, HMC and several related companies and individuals, calling the operation a “$74 million securities fraud scheme.” Among the allegations is that principals used investor funds to lead “a grossly lavish lifestyle.”

Left in question is the future of the Human Performance Center health facility itself, although the doors remained open this week. A hearing is scheduled Thursday morning in Seattle federal court, on the SEC’s motion to appoint a receiver to manage the HMC businesses, including the gym.

The Madison Avenue building is owned by The Landing on Bainbridge Island, Inc., an entity unrelated to Lawrence’s operations. Landing principal is former Bainbridge resident Dick Bowen, now of Whidbey Island.

Kate Carruthers, attorney for The Landing, said last week that she had been in contact with a club official several days before the SEC filing, but did not indicate that anything was amiss at that time.

She had no comment on how the charges against Lawrence might affect the business, other than that “if (the court) has frozen their assets, it will be hard for them to pay rent.”

Carruthers did wonder who might step in to represent the interests of gym members, who have not invested in HMC but have paid club memberships and find themselves caught in the middle of the SEC lawsuit.

“There are thousands of them,” she said, including herself.

In letter to the Review last year, Lawrence said HMC Inc. has focused on “developing the legal infrastructure of an integrated health model and developing the MOFA (medical open file architecture)...HMC Inc. has been nurturing the proof of concept through utilization of their assets by Bainbridge HPC, a health and fitness facility” in Winslow.

Chris Tucker said he was lured away from a four-year contract with an NBA team by promises of a pivotal role in a sports-medicine enterprise. But when he started in June, he found that “nothing they told me was true.”

While HMC purported to offer “integrated health care,” Tucker said it lost its ability to do so during the late summer and fall by dismissing its professional staff -- two chiropractors, a masseuse, two therapists, a naturopath, its director of operations, its head trainer and a number of exercise physiologists.

Two gym members who asked that their names not be used agreed that the facility has gone downhill in recent months.

Some training machines are broken and need to be repaired, said one, while another said that maintenance and general appearance has suffered.

Both said that only a few people remain on staff.

“There is only one person at the desk now, where there used to be more, and the whole back-office operation is gone,” said one.

Both agreed that the professional staff of medical personnel appears to have been cut.

The cutbacks have also hit Destination Travel, which was owned by one of the Lawrence companies.

Signs on the travel service’s Madrone Lane offices said operations were being moved to the HPC facility on Madison, but one of the gym members said none of the travel agent employees appear to be on the premises.

According to the anonymous former employee, layoffs started in August with Shane McDermott, the Znetix physiology director, who went on to sue Lawrence and others over severance pay. That lawsuit was recently settled, McDermott’s attorney says.

The employees said the first crisis occurred on Sept. 14, three days after the World Trade Center attack, when the staff’s paychecks bounced.

“That was blamed on the disaster,” Tucker said. “And everyone pretty much took that in stride, we were so emotional.”

But there was no check at the end of the month – or in October, or the first portion of November, they said.

“They claimed they couldn’t get their money because of Bush’s asset freeze,” Tucker said.

That prompted further questions, according to the other employee.

“We were very skeptical about where the money was coming from,” the employee said. “We knew the fitness center didn’t make enough to pay the employees.”

According to the employee, the fitness center took in $600,000 revenue in 2001, while the top few HMC salaries totalled more than that amount.

The two employees said they were finally paid in November, but after that, paychecks became sporadic.

Employees did get a check for the last week in December – while the facility was closed for the holidays. Tucker said his check cleared the bank.

The other employee said that his check for that period, drawn on a Znetix bank account in St. Louis, Mo., bounced.

“They would convince everyone that they were going to get paid, and that they would get big bonuses if they stuck it out,” Tucker said.

But amid the promises, there was a pervasive element of suspicion, Tucker said.

A cadre of men -- not employees -- appeared, and were referred to as “the henchmen.”

“These guys would show up in black T-shirts with the Znetix insignia and follow the employees around to see how they were talking to people,” the other employee said.

Tucker said one worker was threatened with termination because of a remark that one of the “henchmen” supposedly overheard. Employees were frequently told not to talk to outsiders.

This week, despite the SEC allegations against HMC, Znetix and Lawrence, some investors still believe in the companies, said Deborah Bortner, director of the Securities Division of the Washington State Department of Financial Institutions.

“I’ve gotten copies of e-mails to Gov. Locke about how we should get off their case,” she said. “There are people who say Znetix was ready to go forward with a stock offering.”

The SEC charges that Lawrence and his associates sold some $74 million worth of stock in HMC and Znetix on the promise that Znetix would launch a public stock sale, and that those who got in on the ground floor would realize substantial profit when that occurred.

“Nothing we have done has prevented Znetix from going forward with an IPO,” Bortner said, “and people want so much to believe that will happen.”

“I would like to be wrong,” she said, “but we have seen no evidence they are ready to move forward.”

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