Following a morning arrest on Bainbridge Island, HMC/Znetix founder Kevin L. Lawrence was arraigned in federal court Thursday afternoon on a 64-count indictment, and if convicted faces a maximum sentence of 560 years behind bars.

Lawrence, age 37, was escorted in handcuffs into the courtroom of Magistrate Judge Monica Benton in the Seattle Federal Building. He entered a plea of not guilty to all counts, arising from the alleged bilking of thousands of investors nationwide out of as much as $100 million.

Represented by court-appointed attorney Jennifer Shaw, Lawrence, dressed in jeans and a blue T-shirt, nonchalantly thumbed through the 37-page indictment during the brief proceeding.

He spoke only to affirm that he understood the nature of the proceedings, and that he agreed with the not-guilty plea.

He was given an Oct. 7 trial date before federal Judge Marsha Pechman, the same judge who has presided over the government’s civil case against Lawrence and his companies.

Lawrence was arrested without incident Thursday morning at the Bainbridge Island home of a friend with whom he has been living, prosecutors said. No further details on the arrest were provided.

Lawrence was in the U.S. Marshal’s lockup in Seattle Thursday, and will be transferred to the federal detention center in Sea-Tac, officials said.

Assistant U.S. Attorney Jeff Coopersmith, lead prosecutor, said the government will ask that Lawrence be held without bail, which normally indicates that prosecutors consider a suspect to be a flight risk. A hearing will be held Tuesday on that motion.

“(This is) one of the largest and most egregious frauds ever perpetrated on investors and creditors,” said Jeff Sullivan, criminal division chief for the U.S. Attorney’s Office for the Western District of Washington, in a prepared statement.

Earlier this week, three Lawrence associates pleaded guilty to related charges.

Donavon Claflin of Redmond, who prosecutors identified as HMC treasurer, pleaded guilty in federal court to securities fraud and conspiracy to commit securities fraud, mail fraud and unlawful sale of unregistered securities. He faces a maximum 10-year prison term.

HMC investor relations director Kevin McCarthy, age and hometown unknown, pleaded guilty to mail fraud and conspiracy to commit mail, wire and securities fraud. He also faces up to 10 years in prison.

Clifford G. Baird of Seattle, who managed the so-called Cascade Pointe entities, pleaded guilty to conspiracy and money laundering, and faces up to five years in prison.

Claflin and Baird will be sentenced by Judge Pechman on Oct. 4; McCarthy will be sentenced on Nov. 1.

As part of the plea bargains, the three will cooperate in the government’s prosecution of Lawrence, Sullivan said.

The indictment against Lawrence charges him with one count of conspiracy to commit securities fraud; 24 counts of securities fraud; 11 counts of wire fraud; 14 counts of mail fraud; five counts of money laundering; and nine counts of engaging in monetary transactions with proceeds of unlawful activity.

The indictments handed up Wednesday by a Seattle grand jury are the result of a multi-year investigation into sales of stock by Bainbridge-based Health Maintenance Centers, Inc., and Znetix.

According to federal investigators, from 1995 through early 2002, those companies sold more than $72 million in securities, promising investors that they had developed a new model for integrating health care and fitness. Additional millions were raised by several companies calling themselves Cascade Pointe, but which were actually under the control of Lawrence.

The HMC health club on Madison Avenue was supposed to be the prototype of the Znetix integrated health concept.

Instead of using investor funds to develop the business, investigators say, Lawrence used the money principally to finance a luxurious lifestyle that included exotic cars, boats, jewelry and real estate for himself, friends and colleagues.

The indictment detailed some specific transactions showing hundreds of thousands of investor dollars at a time flowing out of the corporate coffers. These included:

* On Aug. 18, 1999, prosecutors say, Lawrence signed a check for $108,500 on an HMC bank account, payable to a single individual, for work performed on Lawrence’s vehicles. The next day, Aug. 19, 1999, Lawrence signed another check for $119,950 on the same HMC account, to purchase a 1996 Dodge Viper.

* On March 30, 2000, Lawrence signed a check for $292,652 from that account for a year 2000 “cigarette boat”; on Aug. 11, 2000, he spent another $325,000 from that account for a second such boat.

* On March 23, 2001, Lawrence allegedly authorized a wire transfer of $725,000 from an HMC account to pay for property in Princeville, Hawaii. That followed an $80,000 payment for that same property earlier in the month.

* On March 27, 2001, prosecutors say, Lawrence authorized a wire transfer of $600,000 in the name of Health Maintenance Centers “for a residence for a Znetix fund-raiser located in St. Louis, Missouri.” On that same day, he authorized a wire transfer from an HMC account in the amount of $124,653 for the purchase of a 2001 Porsche 911 Cabriolet, “for the wife of an individual affiliated with Znetix, located in Los Angeles, Calif.”

* On April 17, 2001, Lawrence authorized a check for $330,000, payable to a jewelry store for the purchase of a seven-carat diamond ring for his fiance.

Coopersmith said that other transactions are still being investigated.

Of the millions of dollars raised from investors, investigators have found little remaining. In fact, Lawrence filed and affidavit with the court saying that he cannot afford council to defend against the criminal charges.

Judge Benton accepted the affidavit, and appointed Shaw as council. The affidavit was sealed at Shaw’s request.

Federal officials held a news conference following Lawrence’s arraignment, to discuss the investigation and the charges.

Asked whether Znetix/HMC started out as a legitimate venture and then turned bad, or was conceived as a fraud from the beginning, Coopersmith responded, “That’s a hard question to answer…We don’t know.” There are tens of millions of dollars not accounted for, he said, and the investigation is continuing.

Discussing the allegations vis a vis Enron and other recent corporate finance scandals, Coopersmith noted that Znetix was not a publicly traded company, but that investors were led to believe that it would be.

For example, prosecutors say, one investor was told that if he invested $400,000 in June 2000, that investment would be worth between $19 million and $42 million six months later.

“The fact that there were a lot of companies with IPOs would certainly have been in the minds of investors,” Coopersmith said. “They had unrealistic expectations about the stock market.”

New federal laws imposing tougher penalties for corporate fraud would not apply, Coopersmith said, because the activities alleged in the indictment took place before those laws were enacted.

A “realistic sentence” if Lawrence is convicted, he said, would be “tens of years, perhaps more than 25-30.”

Federal regulators sued Znetix and related companies earlier this year alleging securities fraud, and the ventures were shut down and placed under the control of a court-appointed receiver.

Since then, the receiver has been charged with recovering assets to pay creditors. Items that have been recovered so far, including luxury vehicles, art works, office equipment and others, are slated to be auctioned off later this month.