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Lawrence pleads guilty to fraud -- UPDATE
Almost a year to the day after his arrest, would-be health-facility magnate Kevin Lawrence pleaded guilty Monday to three felony counts stemming from the massive Znetix securities fraud.
The plea bargain could keep the 37-year-old Bainbridge Island native behind bars for up to 20 years.
We think it may be the longest sentence ever to come out of a plea agreement, said prosecutor Jeff Coopersmith, an assistant United States Attorney for the Western District of Washington. This office is satisfied with the result.
The plea followed a settlement conference Monday in Tacoma, and was entered in Tacoma before United States District Judge Ronald B. Leighton.
Lawrence, age 37, pleaded guilty to wire fraud, securities fraud, and conspiracy to commit those offenses, prosecutors said.
Lawrence, who has been in federal lockup since his arrest last Aug. 1, will be sentenced Oct. 31 by federal Judge Marsha Pechman.
Under the plea agreement, both the prosecutors and Lawrences attorneys will recommend a 20-year prison sentence. Lawrence has also agreed to forego any appeals, and to cooperate with the government in its effort to recover assets.
The federal criminal justice system does not provide for parole. It does allow credit for good time, Coopersmith said, but that is limited to 15 percent of the sentence.
He might get three years off his sentence, Coopersmith said.
Lawrence was the founder of Health Maintenance Centers, Znetix and other related companies that were said to be developing a new health-care paradigm to integrate fitness and medical care.
In his plea, Lawrence admitted that he and a number of associates sold as much as $100 million in unregistered securities to thousands of investors across the country, based on the promise that Znetix would soon become a publicly traded company and yield a huge return for investors.
Instead of using the money to develop the business concept, Lawrence spent it on an extravagant lifestyle for himself and his associates, an allegation Lawrence admitted in his plea.
In addition to purchasing luxury cars -- more than 130, according to a forensic accountants report -- homes, boats and jewelry, and paying salaries of up to $1 million to employees, Lawrence also sponsored various promotions intended to convey the impression that Znetix was a legitimate operation.
In the summers of 2000 and 2001, Znetix sponsored hydroplanes on the professional racing circuit. Znetix also had a large sign board at Safeco Field. And in 2001, Los Angeles Laker center Shaquille ONeil wore a Znetix baseball cap in the victory parade celebrating the Lakers National Basketball Association championship.
The only real operation of the Lawrence entities was a gymnasium on Madison Avenue. The gym was shut down after after the government filed suit against Lawrence, and its assets sold to new operators not affiliated with HMC.
Lawrences companies became Bainbridge Islands largest commercial tenant by 2001, leasing the second floor of the Pavilion, a large bloc of luxury office space on Parfitt Way and a large warehouse on Miller Road. Commercial brokers estimated that those companies were leasing 10 percent of the islands commercial space.
While his lavish spending was apparent to many islanders, Lawrence steadfastly denied that he was misusing investor funds. In September 2000, a lawyer for Znetix wrote a letter to one Bainbridge investor threatening to file suit for slander.
The letter stated: [Y]ou were overheard stating that Znetix has improperly directed funds raised by Znetix from its investors to the personal use and benefit of Mr. Kevin Lawrence, one of Znetixs shareholders and directors. These statements are completely false, and are extremely damaging to Znetix because it is currently raising investment funds. As such, these statements constitute actionable slander.
But in his plea bargain this week, Lawrence admitted to what his attorneys had labelled as slander.
According to this weeks release from the U.S. Attorneys Office, Lawrence has further admitted that he intentionally, knowingly and willfully used the funds received from investors for his own personal use and benefit and for the une and benefit of his coconspirators and others, including the purchase of luxurious homes, cars, boats, merchandise, and travel.
The scheme began to unravel in April 2001, when the securities division of the state Department of Financial Institutions issued a cease-and-desist order alleging that Lawrence had been selling unregistered shares in HMC, and demanded that he stop doing so.
According to prosecutors, Lawrence then began selling stock in Znetix, and later in limited partnerships called Cascade Pointe, one based in Arizona and the other in the Caribbean island of Nevis.
All told, investigators believe that the Lawrence entities may have brought in over $100 million in cash. But the money was spent so fast that it earned less than $4,000 in interest.
The cash machine was shut down in February 2002, when the federal Securities and Exchange Commission filed suit against Lawrence and his affiliated companies and associates.
At the behest of the SEC, Judge Pechman appointed a receiver to take over operations of the entities, and gather the assets with an eye to winding up the business. At that time, government attorneys said criminal investigations were pending, and that indictments might be possible within six months.
On Aug. 1 2002, Lawrence was arrested without incident at his fiancees home on Bay Hill Road. He was led into a federal courtroom in Seattle in blue prison garb and handcuffs, pleaded not guilty, and was assigned court-appointed counsel after pleading poverty.
He was denied bail, and has remained in federal custody ever since.
After his appointment, receiver Michael Grassmueck began searching for assets. He found little or no cash -- many bank accounts, but no money.
The hard assets that were recovered -- including the Parfitt office furnishings, the equipment at the Madison Avenue health club, a number of cars and motorboats and a $330,000 engagement ring Lawrence bought for his fiancee -- were auctioned off last August, bringing in some $1.5 million, barely enough to pay the receiverships expenses.
As other assets are recovered, they will also go towards paying creditors and, if possible, making some reimbursement to investors.
Lawrence is the only islander to face criminal charges in the investment scam. A number of other Bainbridge residents, including Lawrences sister, mother, ex-wife and fiancee, were named relief defendants in the civil case. They were not charged with any wrongdoing, but only with having received the benefit of Lawrences ill-gotten gains.
Most have settled those cases, and turned assets over to the receiver.
By late afternoon Tuesday, news of the plea agreement began to spread among former investors and others who have monitored the case on an internet discussion board.
For months, various subscribers to the board have expressed hope that Lawrence would receive a lengthy prison term. Several expressed satisfaction with the likely sentence.
I am just thinking about 20 years, one former investor wrote Tuesday, upon learning that Lawrence had pleaded guilty. I was a senior in high school 20 years ago. Twenty years from now, my 2-year-old daughter will be graduating from college. I can't even begin to picture her at 22. That is a long, long time. Better than I would have ever hoped for.
Said another: Alright, people -- the government kicked (butt)!