\

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

UNITED STATES OF AMERICA,	)

)	NO.

Plaintiff,	)

)

v.	)	INFORMATION

)

KEVIN McCARTHY,	)	(Felony)

)

Defendant.	)	FILED UNDER SEAL

_______________________________________)

THE UNITED STATES ATTORNEY CHARGES THAT:

COUNT 1

(Conspiracy)

From in or about 1995, and continuing thereafter until on or about January 23, 2002, at Bellevue, Seattle and Bainbridge Island, within the Western District of Washington, and elsewhere, the defendant, KEVIN McCARTHY, 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. From on or about September 28, 2000, defendant KEVIN McCARTHY was employed by HMC as the head of HMC's "investor relations" department. 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 in or about January, 2002, HMC, Project X, and Znetix, and affiliated entities, through various sales agents and at the direction of persons known and unknown to the United States Attorney, including defendant KEVIN McCARTHY, 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 KEVIN McCARTHY) 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 on or about May 2, 2001, through in or about January 2002, defendant KEVIN McCARTHY, along with others known and unknown to the United States Attorney, secretly controlled and directed the activities of Cascade Pointe.

6.	From in or about May 2, 2001 through in or about January 2002, Cascade Pointe, through various sales agents and at the direction of defendant KEVIN McCARTHY and others known and unknown to the United States Attorney, solicited and received in excess of $12 million 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 unlawfully, knowingly, and willfully, directly and indirectly, by the use of means and instrumentalities of interstate commerce, and of the mails, use and employ, in connection with the purchases and sales of securities, manipulative and deceptive devices and contrivances, by (i) employing devices, schemes, and artifices to defraud; (ii) making untrue statements of material facts and omitting to state material facts necessary to make the statements made, in light of the circumstances in which they were made, not misleading; and (iii) engaging in acts, practices, and courses of business which operated and would operate as a fraud and deceit upon other persons, in violation of Title 15, United States Code, Sections 78j(b) and 78ff(a), and Title 17, Code of Federal Regulations, Section 240.10b-5;

2.	To knowingly and willfully transmit and cause to be transmitted by wire communication in interstate and foreign commerce writings, signs, signals, pictures, and sounds in furtherance of a scheme and artifice to defraud and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises, in violation of Title 18, United States Code, Section 1343;

3.	To knowingly and willfully use and cause 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;

4.	To conduct and attempt to conduct financial transactions affecting interstate commerce involving the proceeds of specified unlawful activity (mail fraud, wire fraud, and securities fraud), knowing that the property involved in the financial transactions represented the proceeds of some form of unlawful activity, and knowing that the transactions were designed in whole and in part to conceal or disguise the nature, the location, the source, the ownership, and the control of the proceeds of specified unlawful activity, in violation of Title 18, United States Code, Section 1956(a)(1)(B)(i);

5.	To transport, transmit, and transfer, and attempt to transport, transmit, and transfer, monetary instruments and funds from places in the United States to and through places outside the United States, and to places in the United States from and through places outside the United States, knowing that the monetary instruments and funds involved in the transportations, transmissions, and transfers represented the proceeds of some form of unlawful activity, and knowing that such transportations, transmissions, and transfers were designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, and the control of the proceeds of specified unlawful activity, in violation of Title 18, United States Code, Section 1956(a)(2)(B)(i); and

6.	To knowingly and willfully engage and attempt to engage monetary transactions by, through, or to financial institutions, which monetary transactions affected interstate and foreign commerce, in criminally derived property of a value greater than $10,000, such property having been derived from specified unlawful activities, that is mail fraud, wire fraud, and securities fraud, in violation of Title 18, United States Code, Section 1957.

C.	MANNER AND MEANS OF THE CONSPIRACY

1.	It was a part of the conspiracy and scheme to defraud that defendant KEVIN McCARTHY and others known and unknown to the United States Attorney offered and sold, and caused to be offered and sold, and aided and abetted the offer and sale of, securities issued by HMC, Project X, Znetix, and Cascade Pointe to thousands of investors located in Washington State and many other states by means of false and fraudulent statements, representations, promises, and pretenses, including, but not limited to, the false and fraudulent statements that:

a.	investors who purchased the securities of HMC for one dollar per share would receive four shares of Znetix for each share of HMC at the point when Znetix purchased or merged with HMC;

b.	Znetix would imminently engage in an Initial Public Offering ("IPO"), after which Znetix securities could be freely traded on exchanges such as NASDAQ;

c.	Znetix shares would be valued at substantially more than one dollar per share after the IPO;

d.	Znetix had retained prominent investment banking and underwriting firms who were working on the IPO;

e.	Znetix had filed or would very shortly file a registration statement with the United States Securities and Exchange Commission;

f.	Znetix was in a "quiet period" just prior to the IPO;

g.	HMC and Znetix had developed proprietary medical and fitness software and equipment which would generate substantial revenues;

h.	Znetix had sold or would shortly sell licenses for approximately $1 million apiece to operate health and fitness clubs throughout the United States;

i.	leading sports and entertainment figures had agreed to franchise health and fitness clubs from Znetix;

j.	a health and fitness club owned by a company affiliated with HMC and located on Bainbridge Island, Washington, was profitable;

k.	Znetix would receive $500 million from an investor group from China;

l.	Cascade Pointe was a private investment firm under management by individuals who were not affiliated with HMC and Znetix;

m.	Cascade Pointe was one of the nation's leading private investment firms, and believed in "diversification" and investments based on "rock-solid financials;"

n.	Cascade Pointe would and had the ability to fund, by means of cash or lines of credit, a "rescission offer" to be made by HMC to its investors, which rescission offer was a final step before the Znetix IPO and would afford HMC investors the opportunity to choose between a refund of their investments or keeping their investment with HMC in place;

o.	the rescission offer, and therefore the Znetix IPO, was imminent;

p.	Cascade Pointe would operate health and fitness clubs in Arizona and in international locations such as Japan, and would receive tens of millions of dollars of revenue;

q.	funds received from investors in Znetix would be placed in an escrow account;

r.	investors who received "units" in Cascade Pointe would receive more than one share of HMC stock for each unit, and would later receive four shares of Znetix for each HMC share;

s.	Znetix had or was about to obtain a contract with the U.S. Department of Defense worth billions of dollars;

t.	Various shell corporations established in the Carribean nation of Nevis would provide tens of millions of dollars in the form of lines of credit to Cascade Pointe;

u.	Cascade Pointe investors would receive million of shares in HMC after the rescission offer to be made by HMC.

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 KEVIN McCARTHY and others known and unknown to the United States Attorney 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;

b.	the financial condition of the 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 defendants 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 the $500 million "debenture contract" with an investment group from China would require Znetix to first make $500 million available to a company called Global Project and Development, Ltd.

g.	that HMC had sold more than its authorized amount of 15 million shares.

3.	It was a part of the conspiracy and scheme to defraud that defendant KEVIN McCARTHY and others known and unknown to the United States Attorney used millions of dollars of funds received from investors for personal use, and for other purposes not disclosed to investors.

4.	It was a part of the conspiracy and scheme to defraud that defendant KEVIN McCARTHY and others known and unknown to the United States Attorney established and used a series of shell companies in the United States, in the Carribean nation of Nevis, and elsewhere, to promote the scheme and to conceal the ownership and control of funds;

5.	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.

6.	It was a part of the conspiracy and scheme to defraud that defendant KEVIN McCARTHY and others known and unknown to the United States Attorney paid employees and consultants of Znetix, HMC, Cascade Pointe, and related entities outrageously high salaries to work, wittingly or unwittingly, in furtherance of the conspiracy and scheme to defraud.

7.	It was a part of the conspiracy and scheme to defraud that defendant KEVIN McCARTHY and others known and unknown to the United States Attorney misled and attempted to mislead the State of Washington, the U.S. Securities and

Exchange Commission, and others with regard to the activities of HMC, Znetix, Cascade Pointe, and those affiliated with them;

8.	It was a part of the conspiracy and scheme to defraud that defendant KEVIN McCARTHY and others known and unknown to the United States Attorney 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.

9.	It was a part of the conspiracy and scheme to defraud that defendant KEVIN McCARTHY and others known and unknown to the United States Attorney lulled and attempted to lull investors, through oral and written communications containing false and misleading statements, into believing that their investments with HMC, Znetix, Cascade Pointe, and related entities, would result in the creation of significant wealth.

D.	OVERT ACTS

In furtherance of the conspiracy, and to promote the objects thereof, defendant KEVIN McCARTHY and others known and unknown to the United States 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 May 2, 2001, defendant KEVIN McCARTHY and others known and unknown to the United States Attorney caused the formation of Cascade Pointe, LLC, as a Washington State limited liability company.

2.	On or about June 26, 2001, Cascade Pointe and HMC executed a "letter of intent" purporting to commit Cascade Pointe to provide $35 million to fund a rescission offer to be made by HMC to investors.

3.	On or about July 2, 2001, defendant KEVIN McCARTHY caused a letter to be sent from Julie S. Mills to the manager of Cascade Pointe stating that Palledium Capital Partners, Ltd. of Nevis would provide Cascade Pointe with a $5 million line of credit for an up front fee of $175,000.

4.	On or about July 11, 2001, defendant KEVIN McCARTHY caused a letter to be sent from Julie S. Mills to the manager of Cascade Pointe stating that Rutherford, York & Baxter, Ltd. of Nevis would provide Cascade Pointe with a $10 million line of credit for an up front fee of $200,000.

5.	On or about July 12, 2001, defendant KEVIN McCARTHY caused a letter to be sent from Julie S. Mills to the manager of Cascade Pointe stating that Winfield & Brundidge Investments, Inc. of Nevis would provide Cascade Pointe with a $10 million line of credit for an up front fee of $150,000.

6.	On or about July 12, 2001, the manager of Cascade Pointe sent a letter to investors stating, among other things, that:

a.	the contract between HMC and Cascade Pointe "discloses in excess of $60 million in promissory notes due to HMC, Inc. by other companies;"

b.	Cascade Pointe "has been awarded the state of Arizona by Znetix. The anticipated annual revenues will be between $50 million and $100 million within the first five years of operation;"

c.	Cascade Pointe "will also be participating in some portion of the international markets of the Znetix rollout;" and

d.	Cascade Pointe "has secured a $50 million line of credit from several private money groups."

7.	On or about July 16, 2001, the manager of Cascade Pointe sent a letter to investors stating, among other things, that:

a.	"On Friday night last, July 13, I signed the final agreement to acquire HMC, Inc. rescission stock, some assets and some liabilities. This agreement now gives

HMC the ability to start its rescission process by providing the funding necessary for HMC to purchase back shares as requested;" and

b.	"With the retaining of a couple of new Fund Managers as consultants, we should be able to finish our $50 million round by the end of the week."

8.	On or about July 16, 2001, defendant KEVIN McCARTHY caused a letter to be sent from Kim Singh to the manager of Cascade Pointe stating that Hawkins & Holland, Inc. of Nevis would provide Cascade Pointe with a $10 million line of credit for an up front fee of $250,000.

9.	On or about July 16, 2001, defendant KEVIN McCARTHY caused a letter to be sent from Julie S. Mills to the manager of Cascade Pointe stating that Nurrell Marcos Capital, Ltd. of Nevis would provide Cascade Pointe with a $10 million line of credit for an up front fee of $150,000.

10.	On or about July 21, 2001, the manager of Cascade Pointe sent an e-mail message to investors stating, among other things, that:

a.	"We are now negotiating to participate in a new foreign opportunity. We are entering discussions for the very real possibility of Cascade Pointe participating in the licensing of over 150 health club/fitness centers in Tokyo, Japan. This just continues to increase your future income stream as a founding member;" and

b.	"This past week someone gave me a great metaphor about this journey we have been on. He suggested it was like an Olympic marathon and we have just entered the Olympic stadium - Wow?"

11.	On or about July 24, 2001, the manager of Cascade Pointe sent a letter to investors, stating, among other things, that Cascade Pointe would be moving its "legal venue" to the Carribean nation of Nevis, and that on or around August 15, 2001, Cascade Pointe would be "retaining the services of an investment banker like Bear Stearns or Stiffel, Nicolaus to assist us in raising money to build the facilities."

/////

/////

12.	On or about August 9, 2001, Cascade Pointe and HMC executed an "Amended and Restated Stock Purchase Agreement" purporting to commit Cascade Pointe to provide $55 million to fund a rescission offer to be made by HMC to investors.

13.	On or about August 28, 2001, defendant KEVIN McCARTHY sent an e-
mail message to two individuals affiliated with Cascade Pointe stating, among other

things, that an "action item" was to "[t]ry to get $2 to $3 million in this week and another $1 mill minimum next week."

14.	On or about September 7, 2001, defendant KEVIN McCARTHY caused a letter to be sent from J. Michelle Williams to the manager of Cascade Pointe stating that Lloyd's & Lloyd's Financial, Ltd. of Nevis would provide Cascade Pointe with a $10 million line of credit for an up front fee of $150,000

15.	On November 2, 2001, a wire transfer in the amount of $40,500.00, representing funds obtained from investors, was received by Cascade Pointe from an account controlled by John Brust at Royal American Bank.

16.	On November 2, 2001, funds in the amount of $125,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of cashier's check number 0604963566 payable to HMC.

17.	On November 7, 2001, funds in the amount of $50,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of cashier's check number 8590333743 payable to HMC.

18.	On November 9, 2001, funds in the amount of $100,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of cashier's check number 8590333968 payable to HMC.

19.	On November 20, 2001, funds in the amount of $140,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of cashier's check number 8590335507 payable to HMC.

/////

/////

20.	On November 26, 2001, funds in the amount of $125,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of cashier's check number 8590336083 payable to HMC.

21.	On November 26, 2001, funds in the amount of $100,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of cashier's check number 8590335912 payable to HMC.

22.	On December 7, 2001, a wire transfer of funds in the amount of $50,000.00, was sent from a Bank of America account in the name of Cascade Pointe LLC to ABN Amro Bank, for the benefit of Lemur Capital Ltd., an entity established in the Carribean nation of Nevis.

23.	On December 19, 2001, Nightwind Enterprises, a Nevada corporation established and controlled by defendant KEVIN McCARTHY, received a wire transfer in the amount of $50,000.00 from a Bank of America account in the name of Cascade Pointe.

24.	On January 16, 2002, funds in the amount of $50,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of a cashier's check payable to HMC.

25.	On January 18, 2002, funds in the amount of $85,000.00 were withdrawn from a bank account controlled by Cascade Pointe for the purchase of a cashier's check payable to HMC.

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

CRIMINAL FORFEITURE ALLEGATIONS

Upon conviction of the offense charged in Count 1 of this Information, defendant KEVIN McCARTHY shall forfeit to the United States, pursuant to Title 18, United States Code, Section 981(a)(1)(C) and Title 28, United States Code, Section 2461(c), any property constituting or derived from proceeds obtained directly or indirectly as a result of the such offense, including but not limited to the following:

1.	The real property located at 17410 102nd Avenue N.E., Bothell, Washington, its buildings, improvements, appurtenances, fixtures, attachments and easements, more particularly described in Attachment A, which is incorporated herein;

2.	Twelve thousand three hundred and ninety dollars ($12,390.00) in United States currency;

3.	One home entertainment unit located at 17410 102nd Avenue N.E., Bothell, Washington;

4.	All proceeds from any accounts under the control of defendant KEVIN McCARTHY located in Nevis or other offshore locations.

If any of the above-described forfeitable property, as a result of any act or omission of the defendant:

(a)	cannot be located upon the exercise of due diligence;

(b)	has been transferred or sold to, or deposited with, a third party;

(c)	has been placed beyond the jurisdiction of the Court;

(d)	has been substantially diminished in value; or

(e)	has been commingled with other property which cannot be divided without difficulty;

it is the intent of the United States, pursuant to Title 21, United States Code, Section 853(p), as incorporated by Title 28, United States Code, Section 2461(c), to seek forfeiture of any other property of said defendant up to the value of the forfeitable property described above.

COUNT 2

(Mail 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 May 25, 2001, at Bellevue, within the Western District of Washington, defendant KEVIN McCARTHY, together with others known and unknown

to the United States Attorney, having devised the above-described scheme and artifice to defraud, did, for the purpose of executing such scheme and artifice to defraud and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises, and for attempting to do so, knowingly and willfully send and deliver and cause to be sent and delivered by the United States Postal Service

according to the directions thereon a Promissory Note dated May 25, 2001, in the amount of $50,000, payable from HMC, Inc., to an investor with the initials R.N.; said Promissory Note was sent through the United States mail from an HMC office located in Bellevue, Washington, to R.N. in Twin Falls, Idaho.

All in violation of Title 18, United States Code, Sections 1341 and 2.

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