Znetix swag on auction block

It will be sort of like a garage sale at King Tut’s -- 1,363 items, including gold, diamonds, exotic cars, custom furniture and artwork by the likes of Rembrandt and Chihuly.

This is not your ordinary auction – not even your Rotary Auction.

Rather, it’s the court-ordered disposal of personal property amassed by the defunct Bainbridge-based Health Maintenance Corporation, Znetix and several company principals.

According to federal regulators, the property was bought with the $100 million-plus dollars investors across the country poured into the companies founded by Kevin Lawrence of Bainbridge Island.

The companies were placed under the control of a court-appointed receiver after being sued by the federal Securities and Exchange Commission for alleged fraudulent stock sales. In court proceedings, company principals did not contest the facts of the charges.

The previews and auction will take place Aug. 21-24, at various locations on Bainbridge Island and in Kenmore, north of Seattle.

Bainbridge locations will include the Znetix office on Parfitt Way, where much of the office equipment is located; the health club on Madison Avenue, formerly operated by HMC; and the GB Storage facility on Miller Road.

While advance bids will be accepted, higher bids will be invited on the days set for auction.

Well-known auctioneer James A. Murphy, Inc., will conduct the sale.

Seattle federal Judge Marsha Pechman approved the auction earlier this week, after a request by receiver Michael Grassmueck.

Grassmueck told the court he would try to sell “the (HMC) fitness equipment, along with all other equipment needed for the operation of the single health club as a going concern.”

The facility is currently being operated under a short-term contract by islanders Mike and Alexa Rosenthal, doing business as Island Health and Fitness. They have indicated that they will be a bidder at the auction.

“We are planning on bidding,” Mike Rosenthal said Thursday. “I imagine there will be other bidders. We have been talking about a lease on the building and hope to have that worked out soon.”

The inventory of computer, office and fitness equipment to be sold is more than 10 single-space pages.

By actual count, the list contains 161 computer-related items, 350 pieces of office equipment and fitness machinery in storage, 212 pieces of equipment at the Madison Avenue facility, 460 pieces of miscellany in storage, including 360 of the “Cranium” games invented by islander Richard Tait.

The 126 pieces of art include four Rembrandt prints or drawings, provenance unknown; a cracked Chihuly glass piece, the price of which “depends on authenticity,” according to the receiver’s inventory; and a number of framed photos with the Znetix logo.

Those items together have an estimated net value of just over $300,000, according to the receiver’s estimate.

The bigger-money items are the 20 vehicles, the eight boats and the 18 motorcycles, trailers and miscellaneous craft, including a fire engine.

The vehicle inventory, which includes four late-model Mercedes and two Cadillacs, has an estimated net value of just over $500,000.

Then there is the jewelry – seven rings, necklaces, watches and bracelets, which, together with a Remington rifle, have an estimated value of $567,000.

The items will be sold as is, but will be free and clear – nothing is owing on any of them. Rather, any amounts owed will be paid out of the proceeds of the sale, which means that the actual sales prices could be significantly higher than the estimated net value.

The Murphy firm will receive 10 percent of the sale price.

The number of vehicles in the sale could increase. Reports from the receiver indicated that HMC/Znetix founder Kevin Lawrence bought more than 100 cars for himself, HMC employees, friends and family members, many of which have not been recovered.

And in an order signed Tuesday, Judge Pechman held two family members in contempt for failure to turn over the keys to several vehicles they allegedly received from Lawrence.

The auction is part of court-directed efforts to marshal the assets of HMC and Znetix. The SEC has charged Lawrence and other principals with selling over $100 million worth of unregistered stock in HMC, Znetix and two limited partnerships called Cascade Pointe.

According to the SEC complaint, investors were told that HMC and Znetix were pioneering a new concept – integrating both physical fitness and health care into one facility.

But the SEC charged that very little of the money raised from investors actually went to advancing the business plan, and was used instead to pay promotional expenses, large salaries and to finance lavish lifestyles.

Certain real estate owned by Lawrence and his relatives on Bainbridge Island and Poulsbo is also being liquidated under an unusual court-approved process.

The properties are listed with a realtor. Once an offer is obtained and accepted, the sale is put on hold while competing offers are solicited through notices in the Seattle newspapers.

The sales only become final if no higher offer is received.

The civil lawsuit filed by the SEC sought refunds of all of the money invested in the unregistered stock, plus civil penalties.

But last month, the SEC settled with HMC and Znetix – although not with the individual defendants – on terms that required only a promise to refrain from future stock sales.

Criminal investigations are under way, and the U.S. Attorney’s Office in Seattle has said that it expects indictments by the end of the year.

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