Receiver Lists HMC/Znetix Assets
June 9, 2008 · Updated 4:14 PM
Like the $74 million that Bainbridge Island-based HMC and Znetix raised from investors, the additional $17 million later raised by related entities called Cascade Pointe has also disappeared, according to a preliminary inventory filed in Seattle federal court by the court-appointed receiver.
All told, receiver Michael Grassmueck can only locate $67,00 cash in the various entities founded and controlled by Kevin L. Lawrence of Bainbridge Island. Lawrence and the various entities have been named as defendants in a civil suit filed by the federal Securities and Exchange Commission in what state regulators have called the biggest home-grown securities fraud in Washington history.
Federal Judge Marsha Pechman appointed Grassmueck as receiver on February 14. He and a small team have set up shop in the former Znetix offices on Parfitt Way, and have begun looking for assets.
While Grassmueck listed the health facility on Madison as a Znetix asset, he did not state when or if it would reopen.
The facility appears to be well stocked with exercise equipment, and enjoys strong community support, Grassmueck said in his report.
But he went on to say: The facility was operating at a loss at the time the Receiver was appointed. The Receiver has temporarily closed the facility to address cash flow issues and loss of insurance.
The Receiver is evaluating the cash flow potential, insurance status, and the overall advisability of ongoing operations. The Receiver may reopen the facility if sufficient capital can be located, insurance is reinstated and the Receiver determines that it in the best interest of the receivership estate. Even if the facility is reopened, the Receiver may ultimately recommend selling it as a going concern, he says.
Meanwhile, Grassmueck posted letters to creditors and former Znetix employees on a Znetix web site. He said that at some point in the future, the court will set a claim date, and those who assert they are owed money by HMC, Znetix or the related entities may file claims. But because there are over 8,500 claimants, he said, he cannot answer individual queries at this time.
Those letters are available on the companys website, www.znetix.com, which Grassmueck now controls. Znetix and HMC, which Grassmueck says are interchangeable for his purposes because the records were so intertwined, had only $47,156 cash on hand as of February 15. An additional $266,000 was in a Bank of America account that another creditor had attached, and Grassmueck said he is seeking to recapture that money.
Under Pechmans order, all court action against any of the affected entities must be placed on hold, and all property seized to satisfy potential judgments must be turned over to the receiver.
The two Cascade Pointe partnerships one in Arizona and one on the Caribbean island of Nevis had only $20,000 in cash, Grassmueck said.
Additional money had been paid to attorneys for the various defendants in the form of retainers, Grassmueck said, and he is attempting to recover that money.
Other assets, he said, include a parcel of real property on High School Road, long labelled the future home of the Human Performance Center. But the seller of that property, Dr. Richard Brobyn, told the Review that Lawrence has not paid for that parcel completely, and has taken out several other loans against that parcel of land, resulting in additional mortgages.
Indicating the economic impact on Bainbridge Island from the firms collapse, the report states that various Lawrence-related entities have a total of five leases on the island, with monthly rents totalling almost $80,000. Leases on Bainbridge involve a portion of the Pavilion, the Madison Avenue building in which the gym is located, the Parfitt Building on the waterfront and two spaces in the Day Road Industrial Park area.
The Receiver is in discussion with all of its landlords and is determining which, if any, should be retained, Grassmueck wrote. The Receiver is also evaluating the right of the Receiver to obtain purported security deposits and unpaid rent.
Grassmueck said he has recovered a quantity of jewelry from the so-called relief defendants individuals who are not suspected of having violated any securities laws, but who may have benefited from the violations. Those defendants include Lawrences mother, sister, estranged wife and fiancee.
He also said he has recovered two Znetix vehicles a motor home and a cargo trailer and is demanding the return of certain personal vehicles and boats.
Other than the cash, jewels and vehicles, Grassmueck found little in the way of valuable assets. He said Znetix receives some $20,000 per month from certain consulting contracts, but spends $40,000 a month to fulfill them. Intellectual-property rights and a prototype exercise machine do not appear to have significant value, Grassmueck said.
His search was complicated, Grassmueck said, by poor record-keeping and a multiplicity of bank accounts as many as 110 accounts throughout the U.S. and the Caribbean.
Znetix and Cascades funds were managed with apparent disregard for basic bookkeeping and accounting mechanisms, he wrote. Consequently, the typical financial records ordinarily found at a business are virtually nonexistent.