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Local gym remains shuttered

The receiver says he wants to reopen the Madison Avenue health club. But he can’t say when that might happen, nor can he say when he might have more definite information.

“We are trying to open the gym as soon as possible, but right now I can’t comment any further,” said Michael Grassmueck of Portland, Oregon, the court-appointed receiver for Health Maintenance Centers, Inc., Znetix, Human Performance Centers and the principals of those entities, chiefly Kevin Lawrence of Bainbridge Island.

Seattle federal judge Marsha Pechman appointed Grassmueck at the behest of the federal Securities and Exchange Commission, which sued Lawrence, HMC and Znetix, among others, for allegedly selling $74 million in unregistered securities while making various misrepresentations.

The suit named HMC, Znetix, Lawrence, Donovan Claflin of Redmond and two limited partnerships as defendants.

Also named were a number of so-called “relief defendants,” who the SEC said are not suspected of violating federal securities laws, but who may have received financial benefits from others’ violations, and may be required to surrender part or all of what they received. The “relief defendants” include Lawrence’s mother, sister, estranged wife Vicki and fiancee Stacy Gray.

The SEC has no criminal enforcement power, and can bring only a civil suit. But the SEC investigation also includes representatives from the Seattle-area office of the United States Attorney and the criminal division of the Internal Revenue Service who could bring criminal charges, according to information released by the SEC.

The order appointing Grassmueck as receiver requires him to find whatever corporate and personal assets he can, then report back to court for further instructions on disposing of them.

Grassmueck and his team have installed themselves in the old Znetix offices in the Parfitt Building. A former gym employee was at the gym facility Thursday, but referred all questions to Grassmueck.

Grassmueck said he would be filing a report next week with the court on his activities.

The court’s order appointing a receiver also barred pending and future legal actions against Lawrence or the HMC-related entities pending further court action, a step aimed at securing an orderly marshalling and distribution of assets, rather than a free-for-all.

Among other things, that freeze affects the efforts of former employees to recover unpaid salaries, according to attorney Andy Maron, who represents a number of such claimants.

Maron said he has essentially been told to be patient while the receiver does his work.

“I have not talked to the receiver, but I have talked to the attorney for the receiver, who basically took our names and told us he would get back to us,” Maron said.

The Lawrence-related entities face a number of claims from creditors, including wage claims from former employees, claims for rent from Bainbridge Island landlords, claims for payment from entities with which the companies or the individuals received goods and services and claims from investors wanting refunds.

Moreover, under Judge Pechman’s order, the receiver and his team, including attorneys and accountants, are to be paid from HMC/Znetix assets.

At the Feb. 14 hearing that led to appointment of a receiver, the SEC said that of the $74 million invested in HMC and Znetix, it has only been able to locate some $500,000.

After the Washington Division of Financial Institutions obtained a cease-and-desist order last April preventing further HMC stock sales, Lawrence formed two new limited partnerships – one based in Arizona and the other on the Caribbean island of Nevis – called Cascade Pointe, which were raising money to pay off the HMC investors and buy the company.

Before Judge Pechman’s order, which also barred further Cascade Pointe sales, those entities raised some $17 million, the SEC said.

Nicolas Morgan, senior SEC trial counsel who obtained the court order, said the SEC does not yet know what happened to that $17 million.

“There is a time lag between when money is received and when it shows up on the books,” he said. “We don’t have that information yet.”

The SEC’s suit seeks a refund of all money invested, plus interest, and also seeks monetary penalties. Because identified assets are substantially less than the money believed invested, it appears unlikely that the claims of employees, creditors and investors can all be satisfied.

Morgan said that in a receivership situation, the priorities for asset distribution are not fixed.

“The rules for equitable receivership are not codified somewhere like bankruptcy rules,” Morgan said.

“It is up to the judge’s sense of fairness to determine who gets what.”

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