March
4, 2005
ZNETIX
STOCK SALESMEN SENTENCED FOR FRAUD AND CONSPIRACY
LARRY L. BEAMAN, 63, of Ridgefield, Washington, MICHAEL J. CULP, 33,
of Bothell, Washington and HARVEY W. KUIKEN, 52, of Newcastle, Washington,
were sentenced to lengthy prison terms today for multiple felonies relating
to their sale of stock in Znetix, Inc., Health Maintenance Centers,
Inc., Cascade Pointe LLC, and affiliated entities. BEAMAN was sentenced
to 12 ½ years in prison, 3 years of supervised release and $5,264,366
in restitution, CULP was sentenced to 8 years in prison and 3 years
of supervised release, and KUIKEN was sentenced to 9 years in prison
and 3 years of supervised release by U.S. District Judge Marsha Pechman.
Judge Pechman will determine at a later hearing the amount of restitution
to be paid by CULP and KUIKEN. The three men were key figures in the
Znetix stock swindle – the $91 million fraud is the largest ever
in the State of Washington.
The men were convicted in May 2004, after a seven-week trial. BEAMAN
was convicted of 26 felony counts, including Conspiracy, Securities
Fraud, Wire Fraud, and Money Laundering. CULP was convicted of 12 counts,
including Conspiracy, Securities Fraud, and Money Laundering. KUIKEN
was convicted of 14 counts, including Conspiracy, Securities Fraud,
and Engaging in Unlawful Monetary Transactions. The three were originally
indicted on March 26, 2003.
The charges against BEAMAN, CULP, and KUIKEN arose out of the government's
investigation of the offer and sale of over $90 million of securities
by Znetix, Inc., Health Maintenance centers, Inc., Cascade Pointe, LLC,
and affiliated entities. The conspiracy's ringleader was KEVIN L. LAWRENCE,
who is currently serving a 20-year prison term. Over the course of about
seven years, LAWRENCE and his co-conspirators, including BEAMAN, CULP,
KUIKEN, and six additional defendants – DONAVON CLAFLIN, KEVIN
McCARTHY, CLIFFORD BAIRD, STEVEN REIMER, ALFONSO D. LACSON, and JAMES
WUENSCHE -- defrauded thousands of investors out of approximately $91
million through a massive conspiracy involving false representations
and failures to disclose truthful and accurate information in connection
with the sale of the securities of Znetix, Inc., Health Maintenance
Centers, Inc., Cascade Pointe, LLC, and affiliated entities. Two additional
defendants, TIMOTHY T. MOODY and ALEX LACSON, were also convicted of
felonies in connection with their affiliation with Znetix. All defendants
have now been sentenced except ALFONSO D. LACSON, whose sentencing is
scheduled for April 18, 2005.
The co-conspirators used funds received from investors for their own
personal benefit, including for the purchase of luxurious homes, cars,
boats, merchandise, and travel. For example, defendant BEAMAN used investor
funds to purchase over $100,000 of jewelry and to have over $200,000
worth of landscaping done at his residence. Defendant CULP used investor
funds to obtain new cars and purchase a $1.1 million residence in Woodinville,
Washington. Defendant KUIKEN used investor funds to purchase gemstones,
towards a down payment on a multi-million dollar view property in Newcastle,
and for two chartered Lear jet trips. The evidence at trial showed that
defendants BEAMAN, CULP, and KUIKEN together received over $7.7 million
directly from investors but sent only about $2.7 million to Znetix,
HMC, or Cascade Pointe. The evidence at trial also showed that BEAMAN,
CULP, and KUIKEN each controlled a shell company in the Carribean island
of Nevis, and that Nevis companies submitted fraudulent documents to
Cascade Pointe to make that company falsely appear to be a wealthy venture
capital firm that would fund the continued operations of HMC and efforts
to resolve the securities regulatory issues of HMC.
After the State of Washington's Department of Financial Institutions
issued a Cease and Desist Order in April, 2001, directing HMC and its
agents to stop selling securities illegally, Cascade Pointe was secretly
formed by LAWRENCE and McCARTHY to continue the illegal fundraising.
KUIKEN and BEAMAN were major fundraisers for Cascade Pointe. Cascade
Pointe raised over $10 million from May, 2001, until the Court granted
the SEC's January, 2002, request to freeze accounts and appoint a receiver.
The Receiver has recovered some of the money lost by investors, through
auctions and by pursuing civil actions, such as a lawsuit against the
Seattle law firm that represented HMC and LAWRENCE.
The fraud on investors was facilitated, in part, by the expenditure
of millions of dollars of investors' funds to launch an advertising
campaign that included placing a large sign at the Seattle Mariner's
Safeco Field, and having sports stars such as Shaquille O'Neal wear
a Znetix cap after the Los Angeles Lakers' 2001 NBA championship. The
advertising campaign was designed only to sell more stock, as Znetix
had no products or services to offer and little or no revenue. Znetix
had been touted as a company engaged in providing cutting-edge health
and fitness products and services.
In sentencing BEAMAN, Judge Pechman noted that he kept a secret bank
account during and after his trial. "You don't get how people are
supposed to own up and tell the truth. You are dangerous to the economic
health of lots and lots of people," Judge Pechman told him. BEAMAN
was already in federal custody because of the secret bank account. Judge
Pechman ordered CULP and KUIKEN into federal custody immediately, saying
it was time for the men to start serving their sentences. In sentencing
CULP, Judge Pechman stated, "It is very hard for me to believe
that he didn't know he was doing something wrong when he was putting
investor money into his own bank account instead of turning it over
to the company."
This case was investigated jointly by the State of Washington Department
of Financial Institutions, Securities Division, the Federal Bureau of
Investigation, the Securities and Exchange Commission, the Internal
Revenue Service, and the securities enforcement authorities in several
other states, including the states of Illinois, Hawaii, Wisconsin, and
Oregon. U.S. Attorney John McKay expressed his gratitude in particular
for the work of the State of Washington Department of Financial Institutions,
Securities Division, which took the lead in analyzing over 600 bank
accounts used in the course of the conspiracy to defraud investors.
Assistant United States Attorneys Jeffrey B. Coopersmith, Ye-Ting Woo,
Richard E. Cohen, and Special Assistant United States Attorney Todd
Brilliant prosecuted the case.
More information regarding this case, a copy of the Court's Judgment,
and other court documents and press releases are available by following
the victim-witness and Znetix links on the web site for the Western
Washington United States Attorney's Office. Information about the
case also is available on the Receiver's
web site. For further information, please contact Jeffrey B. Coopersmith
or Ye-Ting Woo, Assistant United States Attorneys, or Emily Langlie,
Public Affairs Officer for the United States Attorney's Office, at (206)
553-4110.
