Real victims from chasers of rainbows

As this space has previously noted, those who invested their money in the HMC/Znetix fiasco are not the most sympathetic lot in the world.

Without the benefit of prospectus, financial records, earnings history or any tangible assets, they sunk many millions of dollars – as much as $91 million, according to federal investigators – into a pipe dream.

The motive was the ageless promise of instant wealth. The Bainbridge health club was not just a gym, the story went, but was a prototype of a new “integrated healthcare paradigm” to be developed by Znetix. Znetix would buy out HMC by swapping several of its shares for each HMC share, then would “go public,” meaning that each Znetix share could be sold on the stock exchanges.

The promised multiples, it seems, were varied, but always spectacular. One investor who filed suit said that the promised return was ten- to thirty-fold. Another complaint said that those investors were “assured a return of between 160 to 1 and 420 to l.”

Such investors, we suppose, are now sufficiently chastened by revelations in federal court that the companies never had any genuine operations, and that the money is gone. We needn’t further rub it in by asking, for example, why someone who actually had a guaranteed return of 420 to 1 would want to sell part of that deal.

If the only players involved were the investors and the promoters, we would watch the pending legal proceedings with a certain detachment, thinking that folks who buy into “guaranteed 420-1” shots are going to be separated from their money one way or another.

But as the details of the story have emerged over the last few weeks, so have some real victims, many of whom are readers of this newspaper.

Earlier this week, for example, we were contacted by a young man whose partner worked for Znetix. Now eight months pregnant, she learned recently that Znetix had stopped making health-insurance payments, and that she is now uninsured.

Then there are the unpaid employees, some of whom worked on a basically volunteer basis to keep the Madison Avenue facility open as long as possible. And there are the contractors, architects and suppliers who furnished their services to HMC or to its principal, Kevin Lawrence, and have allegedly not been paid.

More broadly, the whole island economy has been victimized by the HMC collapse. A substantial payroll has been lost, and a great deal of rent is not being paid.

Once again, then, we see the wisdom in laws against selling investments that were, at best, highly speculative and at worst flatly fraudulent. Deals are made with real people for their goods and services. Real changes are made in people’s lives, in reliance on the bona fides of the companies involved.

Rainbow-chasing may seem harmless, but that’s not always so. While the hopeful investors’ eyes are full of stars and heads are in the clouds, real people can be trampled in the stampede for instant wealth.

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