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Judge denies bail; Lawrence jailed until trial

CORRECTION: This version corrects the dollar amount of Lawrence's unemployment, incorrectly reported in an earlier version.

Kevin Lawrence’s guilt or innocence was not at issue Tuesday afternoon in

Seattle federal court.

But his credibility was. And it lost badly.

As a result, Lawrence will remain in federal custody pending his October trial date on a 64-count fraud indictment.

“We’re not going to determine Mr. Lawrence’s guilt or innocence today,” said

Magistrate Judge Ricardo Martinez. “One thing I am sure of is that this

court cannot rely on anything Mr. Lawrence said. Mr. Lawrence will be

detained until trial.”

Judge Martinez conducted the hour-long hearing in the Seattle federal

courthouse on the government’s motion to detain Lawrence without bail until

trial.

Federal prosecutors maintained that Lawrence is a flight risk, and might attempt new stock sales similar to those for which he now faces fraud charges.

Not so, said Russell Aoki, Lawrence’s court-appointed attorney.

“Lawrence was aware of this investigation, aware that close friends of his

have been charged and pleaded guilty, yet he is still here,” argued Aoki,

who asked Judge Martinez to set bail at $200,000 and impose other

conditions, such as requiring Lawrence to surrender his passport.

Aoki argued that the 37-year-old Lawrence has lived on Bainbridge Island

most of his life, that his parents and fiance live here, and that his son is

also in the area.

“Mr. Lawrence’s parenting plan in his divorce settlement includes provisions

for visitation in the event he is incarcerated,” Aoki argued. “He is not

going to give that up easily.”

Aoki said any perceived threat to the public could be overcome by imposing

conditions that would prevent him from trying to raise additional money from

investors. And he argued that Lawrence needs to be able to review documents

in his attorney’s office to help prepare an effective defense.

Assistant U.S. Attorney Jeff Coopersmith, the government’s lead prosecutor,

countered that Lawrence may have been preparing to flee, and that he cannot be

trusted.

He noted that when Lawrence was arrested, he had $1,800 in $100 bills in his

possession, yet was ostensibly living on $496 weekly unemployment

benefits.

“He has taken trips to Salt Lake City and Canada, and has substantial cash

in his possession,” Coopersmith said. “Millions of dollars in cash

withdrawals have been unaccounted for, and his lifestyle is inconsistent

with unemployment compensation.”

In addition to the cash, arresting agents also found promotional literature

for another company with a health-care business concept similar

to that for Znetix or Health Maintenance Centers, Coopersmith said,

suggesting that Lawrence may have tried to persuade additional investors to

part with their cash.

He was also not forthcoming about his addresses, the prosecutor said.

“He told pretrial services that he was living in Poulsbo, but he was

arrested at (fiancee) Stacy Gray’s house on Bainbridge Island,”

Coopersmith said.

The prosecutor also made a point of Lawrence’s previous attempts to evade court

orders.

“His response to the state’s cease-and-desist order was to form new entities

called Cascade Pointe, which he said were independent of HMC, for the

purpose of raising additional money,” Coopersmith said. “And after his

assets were frozen by the federal court, he contacted a real estate agent in

Hawaii and listed property there for sale.”

Answering the question of why Lawrence hadn’t fled, Coopersmith said that

may have been a simple miscalculation.

“When we asked the court to stay the civil proceedings against Mr. Lawrence

until completion of the criminal proceedings, we said we expected

indictments by the end of the year,” Coopersmith said. “We finished four

months early. He may have been preparing to leave but thought he had a

little more time.”

In his ruling denying bail, Martinez honed in on Lawrence’s unexplained assets and

the prior pattern of failing to heed the will of the court.

“He has had his own assets frozen by the government, yet he still carries

substantial cash,” Judge Martinez said. “He may have secreted substantial

assets out of money obtained by fraudulent means. And he has a history of

ignoring court orders.”

Lawrence, dressed in prison garb of a collared blue shirt, blue trousers

with an elastic waist and slip-on blue sneakers, was led into and out of the

courtroom in handcuffs. He was returned to the federal detention facility in

SeaTac, where he will be held until his Oct. 7 trial date before Judge Marsha

Pechman.

Lawrence is accused of selling some $60 million worth of unregistered stock

on Bainbridge-based HMC and Znetix. Then, after the state issued a

cease-and-desist order in April of 2001, he is accused of organizing Cascade

Pointe, which sold another $12 million in stock.

A 64-count indictment handed up last week accuses the 37-year-old Lawrence

of promising investors that the companies had developed a new method of

integrating physical fitness and medical care. The Madison Avenue health

club formerly operated by HMC was supposedly the prototype facility.

Instead of using the money to develop the business concept, prosecutors say,

Lawrence used it to finance an extravagant lifestyle for himself, his

employees and colleagues, including the purchase of hundreds of exotic

automobiles and watercraft, as well as expensive jewelry.

The 64 counts with which Lawrence is charged, which involve securities

fraud, wire fraud, mail fraud, money laundering and conspiracy, carry

theoretical maximum prison terms of 560 years. Prosecutors say a realistic

sentence, should Lawrence be found guilty, is as much as 35 years in prison.

Three of Lawrence’s colleagues earlier pleaded guilty to

various fraud charges, and face prison terms of up to 10 years. As part of their plea bargains, they have agreed to cooperate with prosecutors, Coopersmith said.

Neither Lawrence, Aoki or Lawrence’s family would comment after the hearing.

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