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.