UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

UNITED STATES OF AMERICA,	)

)	NO.

Plaintiff,	)

)

v.	)	INFORMATION

)

DONAVON C. CLAFLIN,	)	(Felony)

)

Defendant.	)	FILED UNDER SEAL

_______________________________________)

THE UNITED STATES ATTORNEY CHARGES THAT:

COUNT 1

(Conspiracy)

From in or about 1995, and continuing thereafter until a time unknown but at least until in or about October 2001, at Seattle, Bellevue, and Bainbridge Island, within the Western District of Washington, and elsewhere, the defendant, DONAVON C. CLAFLIN, together with other persons known and unknown to the United States Attorney, did unlawfully, willfully, and knowingly combine, conspire, confederate and agree among themselves and each other to commit certain offenses against the United States, as follows:

A.	INTRODUCTION

1.	Health Maintenance Centers, Inc. ("HMC") was incorporated in Washington State on May 12, 1995, and was administratively dissolved and reinstated at various times throughout the period from on or about December 6, 1995, through on or about October 30, 2000. At all times relevant to this Information, defendant DONAVON C. CLAFLIN was employed by HMC as its treasurer, and was the authorized signer for most of the bank account maintained by HMC. The Articles of Incorporation for HMC provided that the corporate purposes of HMC were "[t]o operate health and exercise clubs, and related facilities" and "[t]o engage in any business, trade or activity which may be conducted lawfully by a corporation organized under the Washington State Business Corporation Act." The Articles of Incorporation for HMC also provided that "[t]his corporation is authorized to issue 10,000 shares of common stock and each share shall have a par value of $1.00." On February 5, 1997, HMC filed Articles of Amendment that provided, among other things, that "[t]his corporation is authorized to issue 15,000,000 shares of common stock and each share shall have a par value of $1.00." On or about December 26, 2001, HMC ceased to exist as a Washington State corporation and merged with a Delaware corporation known as HMC Acquisition Corp., a wholly-owned subsidiary of Znetix, Inc. Also on or about December 26, 2001, HMC Acquisition Corp. changed its name to Health Maintenance Centers, Inc.

2.	Project X, Inc. was incorporated in the State of Washington on November 3, 1999. On October 3, 2000, Project X filed Articles of Amendment with the Washington State Secretary of State changing its name to Znetix, Inc. On or about September 25, 2001, Znetix, Inc., ceased to exist as a Washington State corporation and merged with a Delaware corporation known as Znetix, Inc.

3.	From in or about 1995 through a time unknown but at least until in or about October 2001, HMC, Project X, and Znetix, and affiliated entities, through various sales agents and at the direction and with the participation of persons known and unknown to the United States Attorney, including defendant DONAVON C. CLAFLIN, solicited and received in excess of $50 million from investors. At no time were the offers and sales of securities issued by HMC, Project X, Znetix, and affiliated entities registered with the United States Securities and Exchange Commission, the State of Washington Department of Financial Institutions, Securities Division, or with the securities regulatory authority in any other state.

4.	On or about April 9, 2001, the State of Washington Department of Financial Institutions, Securities Division, issued a Summary Order to Cease and Desist against HMC and an individual known to the United States Attorney. The Cease and Desist Order, among other things, barred HMC (and its employees, officers and directors, including defendant DONAVON C. CLAFLIN) from selling securities through fraudulent representations and material omissions, and in violation of the State of Washington's securities registration statute.

5.	Cascade Pointe LLC was a limited liability company formed in Washington State on or about May 2, 2001. Cascade Pointe of Arizona LLC was a limited liability company formed in Arizona in or about July, 2001. Cascade Pointe of Nevis LLC was a limited liability company established in the Carribean nation of Nevis on or about July 26, 2001.1 From in or about May 2, 2001 through in or about January 2002, Cascade Pointe, through various sales agents and at the direction of persons known and unknown to the United States Attorney, solicited and received in excess of $12 million from investors. During at least a portion of this period, defendant DONAVON C. CLAFLIN maintained bank accounts which received deposits of over $7 million raised by Cascade Pointe from investors. At no time were the offers and sales of securities issued by Cascade Pointe and affiliated entities registered with the United States Securities and Exchange Commission, the State of Washington Department of Financial Institutions, Securities Division, or with the securities regulatory authority in any other state.

B.	OBJECTS OF THE CONSPIRACY

The objects of the conspiracy were as follows:

1.	To knowingly and willfully obtain money and property by means of omissions to state material facts necessary in order to make the statements, in light of the circumstances under which they were made, not misleading, and engage in acts, practices, and courses of business that operated and would operate as a fraud or deceit upon purchasers in the offer and sale of securities issued by HMC, Project X, Znetix, Cascade Pointe, and affiliated entities by the use of the means and instruments of transportation and communication in interstate commerce and of the mails, in violation of Title 15, United States Code, Sections 77q(a) and 77x;

2.	To knowingly and willfully cause to be carried through the mails and in interstate commerce, for the purpose of sale or delivery after sale, securities for which no registration statement was in effect, in violation of Title 15, United States Code, Sections 77e(a)(2) and 77x;

3.	To knowingly and willfully participate in using and causing the United States mail and interstate couriers to be used in furtherance and execution of a scheme and artifice to defraud investors in HMC, Project X, Znetix, Cascade Pointe, and affiliated entities, and a scheme and artifice for obtaining money and property of said investors by means of false and fraudulent pretenses, representations and promises, in violation of Title 18, United States Code, Section 1341;

C.	MANNER AND MEANS OF THE CONSPIRACY

1.	The essence of the conspiracy and scheme to defraud was that investors in HMC, Project X, Znetix, and Cascade Pointe were falsely promised that if they purchased securities issued by these companies for one dollar per share, they would be greatly enriched at the point when Znetix engaged in an initial public offering ("IPO") and had its shares traded on public exchanges such as NASDAQ. Investors who purchased HMC stock were told that they would receive four shares of Znetix for every share of HMC. Investors were led to believe that the IPO was imminent and that after the IPO the stock would be traded at prices substantially above one dollar per share, but at no time did Znetix have any ability to engage in an IPO, and at no time did Znetix have any relationship with investment banking or underwriting firms who were working on an IPO for Znetix.

2.	It was a part of the conspiracy and scheme to defraud that in the offer and sale of the securities issued by HMC, Project X, Znetix, and Cascade Pointe, defendant DONAVON C. CLAFLIN and others known and unknown to the United States Attorney knowingly and willfully failed to truthfully and accurately disclose in a registration statement, prospectus, private placement memorandum or in any other form material facts, including but not limited to:

a.	the uses to which investors' money would be put, including that the investors' money had been and would be used to purchase millions of dollars worth of luxury cars, boats, homes, jewelry, and other items;

b.	the financial condition of HMC, Project X, Znetix, and Cascade Pointe;

c.	the lack of financial controls at HMC, Project X, Znetix, and Cascade Pointe;

d.	the compensation to be received by defendant DONAVON C. CLAFLIN and others associated with HMC, Project X, Znetix, and Cascade Pointe;

e.	that HMC, Project X, Znetix, and Cascade Pointe were under common management and control;

f.	that HMC had sold more than its authorized amount of shares.

3.	It was a part of the conspiracy and scheme to defraud that the coconspirators used millions of dollars of investor funds to promote the scheme by sponsoring hydroplane and offshore racing boats, the Seattle Mariners major league baseball team, and other prominent organizations and events, by hosting lavish parties in Los Angeles and elsewhere, and by paying professional sports stars to wear items imprinted with the Znetix logo.

4.	It was a part of the conspiracy and scheme to defraud that defendant DONAVON C. CLAFLIN and others known and unknown to the United States Attorney paid employees, consultants and sales agents of Znetix, HMC, Cascade Pointe, and

related entities unreasonably high salaries, commissions, and other compensation to work, wittingly or unwittingly, in furtherance of the conspiracy and scheme to defraud.

5.	It was a part of the conspiracy and scheme to defraud that the coconspirators employed multi-level marketing techniques and various sales agents to sell the securities of HMC, Znetix, and Cascade Pointe to over five thousand investors throughout the United States.

6.	It was a part of the conspiracy and scheme to defraud that defendant DONAVON C. CLAFLIN and others known and unknown to the United States Attorney signed and issued thousands of stock certificates and promissory notes to investors, some of which were backdated.

D.	OVERT ACTS

In furtherance of the conspiracy, and to promote the objects thereof, defendant DONAVON C. CLAFLIN and others known and unknown to the United States Attorney committed and caused to be committed, among others, the overt act described in Count 2 of this Information, and the following:

1.	On or about April 14, 1998, defendant CLAFLIN signed check number 1661 in the amount of $5,830.34, drawn on a U.S. Bank account in the name of American HMC LLC, payable to The Brothers for the purchase of a Bombardier jet ski watercraft.

2.	On or about December 10, 1999, defendant CLAFLIN signed a "Corporate Resolution & Stock Certificate" reflecting a $5,000 investment in HMC by an investor with the initials M.S. located in Kirkland, Washington.

3.	On or about January 13, 2000, defendant CLAFLIN signed a "Corporate Resolution & Stock Certificate" reflecting a $4,000 investment in HMC by an investor with the initials M.S. located in Kirkland, Washington.

4.	On or about June 26, 2000, defendant CLAFLIN purchased a cashiers check in the amount of $25,000, drawn from a U.S. Bank account in the name of Health Maintenance Centers, Inc., payable to Europa International for the purchase of a 2000 Mercedes Benz 500CV automobile.

5.	On or about July 28, 2000, defendant CLAFLIN signed check number 1103 for the amount of $10,000, drawn from a U.S. Bank account in the name of National Alliance, payable to Phil Smart for the purchase of a 2000 Mercedes ML55 automobile.

6.	On or about September 28, 2000, defendant CLAFLIN authorized a wire transfer in the amount of $53,178.82 from a U.S. Bank account in the name of Health Maintenance Centers, Inc., payable to Transnation Title Insurance Company for the purchase of a condominium in Redmond, Washington for his personal use.

7.	On or about December 15, 2000, defendant CLAFLIN authorized check number 1201 in the amount of $18,983.72, drawn on a U.S. Bank account in the name of National Alliance, Inc. payable to Nuvell Financial Services for the payoff purchase of a 1994 Landrover ROV.

8.	On or about December 27, 2000, defendant CLAFLIN purchased cashier's check number 5021882717 in the amount of $25,000, using funds from a U.S. Bank account in the name of Project X, Inc., payable to Executive Auto Consultants for the purchase of a 2000 Mercedes G500 automobile.

9.	On or about February 9, 2001, defendant CLAFLIN signed an unnumbered counter check in the amount of $20,000, drawn from a First Mutual account in the name of Health Maintenance Centers, Inc.- American Integrated Health, payable to Title Guaranty Escrow Services for the purchase of property in Princeville, Hawaii.

10.	On or about March 7, 2001, defendant CLAFLIN signed a "Corporate Resolution & Stock Certificate" reflecting a $7,000 investment in HMC by an investor with the initials N.S. located in Aliso Viejo, California, and backdated such Corporate Resolution & Stock Certificate to December 31, 2000.

11.	On or about March 23, 2001, defendant CLAFLIN authorized a wire transfer in the amount of $725,000 from a First Mutual Bank account in the name of Health Maintenance Centers, Inc.- American Integrated Health, payable to Title Guaranty Escrow Services for the purchase of property in Princeville, Hawaii.

12.	On or about March 26, 2001, defendant CLAFLIN authorized a wire transfer in the amount of $90,000, drawn from a First Mutual Bank account in the name of Health Maintenance Centers, Inc.- American Integrated Health, payable to Hall Pantera, Inc. for the purchase of a 1972 DeTomaso Pantera automobile.

13.	On or about April 3, 2001, defendant CLAFLIN authorized a wire transfer in the amount of $24,635.29 drawn from a U.S. Bank account in the name of National Alliance, Inc., payable to Knight & Fraser Capital LTD.

14.	On or about April 6, 2001, defendant CLAFLIN authorized a wire transfer in the amount of $174,698.75 from a First Mutual Bank account in the name of Health Maintenance Centers, Inc.- American Integrated Health, to The Bank of Nova Scotia, Nassau, Bahamas, for account number 6077-18 in the name of Graham, Thompson & Co.

15.	On or about April 17, 2001, defendant CLAFLIN signed check number 1096 in the amount of $330,000, drawn on a First Mutual Bank account in the name of Health Maintenance Centers, Inc.- American Integrated Health, payable to Lido Jewelry; the money was used for the purchase of a seven carat diamond ring.

16.	On or about June 29, 2001, defendant CLAFLIN signed a Promissory Note in the amount of $10,000, payable from HMC, Inc. to an investor with the initials D.N. located in Houston, Texas.

17.	On or about July 24, 2001, defendant CLAFLIN signed a Promissory Note in the amount of $901,500, payable from HMC, Inc. to an investor with the initials N.S. located in Aliso Viejo, California.

18.	On or about August 10, 2001, defendant CLAFLIN signed check number 11063 in the amount of $50,000, drawn from a Wells Fargo account in the name of Health Maintenance Centers, Inc. dba HPC, payable to Nightwind Enterprises.

All in violation of Title 18, United States Code, Section 371.

COUNT 2

(Securities Fraud)

1.	All paragraphs set forth under Count 1 of this Information are incorporated by reference in this paragraph as if fully set forth herein.

2.	On or about July 30, 1999, within the Western District of Washington, and elsewhere, the defendant, DONAVON C. CLAFLIN, in the offer and sale of shares of stock in Health Maintenance Centers, Inc. ("HMC"), securities within the meaning of Title 15, United States Code, Section 77b(a)(1), did knowingly and willfully obtain money and property by means of omissions to state material facts necessary in order to make the statements, in light of the circumstances under which they were made, not misleading; and engage in acts, practices, and courses of business that operated and would operate as a fraud or deceit upon the purchaser, in that defendant CLAFLIN did knowingly and willfully use and cause to be used the mails and means and instruments of transportation and communication in interstate commerce to issue a "Corporate Resolution & Stock Certificate" reflecting the purchase of 5,000 shares of

/////

/////

HMC stock by investors with the initials D.K. and D.K. located in Antelope, Oregon, and to send such document from a place within the Western District of Washington to Antelope, Oregon.

All in violation of Title 15, United States Code, Sections 77q(a) and 77x.

DATED this ___ day of July, 2002.

MARK BARTLETT

Acting United States Attorney

FLOYD SHORT

Assistant United States Attorney

JEFFREY B. COOPERSMITH

Assistant United States Attorney

YE-TING WOO

Assistant United States Attorney

RICHARD E. COHEN

Assistant United States Attorney