Michigan Securities Lawyers

Michigan Man Indicted For Mail And Wire Fraud In Znetix Related Case

FRANK A. BADGER, 63, of Grand Rapids, Michigan was indicted by a Federal Grand Jury in Seattle for two counts of Mail Fraud and one count of Wire Fraud. The indictment stems from the multi-state investigation of financial transactions related to the Znetix stock fraud, the largest stock fraud ever in the State of Washington. Each count of Mail Fraud and Wire Fraud charged against BADGER is punishable by up to five years in prison. BADGER was arraigned on the charges in federal court in Seattle on January 13, 2005.

According to the allegations in the indictment and other court documents, in early 2002, just after the SEC obtained a Preliminary Injunction against Znetix and related parties freezing accounts and appointing a receiver, BADGER convinced three elderly investors who had been his clients while he was a stockbroker to allow him to take money from their accounts for investment purposes. BADGER did not disclose the nature of the investments. In one case, BADGER asked an 80-year-old Paw Paw, Michigan woman to sign a blank authorization form. At the time, BADGER was no longer an authorized agent or broker of a securities firm, but he fraudulently used a seal and letterhead from his former firm to make the authorization to withdraw funds appear legitimate. BADGER then authorized the wiring of $200,000 from the victim's annuity account to Steven J. Reimer, for a purported investment in a high-yield trading program. When an employee of the insurance company that held the victim's annuity called BADGER about the $200,000 withdrawal, BADGER falsely told the employee that Reimer was the victim's son-in-law. As part of the alleged scheme to defraud, Michael J. Culp, another defendant in the Znetix case, sent materials to the victim claiming that the money obtained by BADGER had been invested in a Bellevue, Washington-based company called Constitution Coffee. According to court documents, this claim was false. Two other elderly clients invested $100,000 each with BADGER. The indictment alleges that their money was also sent to Steven J. Reimer. The clients' money was never returned.

Reimer was sentenced to 70 months in prison after pleading guilty to conspiracy to commit securities fraud, wire fraud, mail fraud, unlawful sale of unregistered securities and money laundering, in connection with the Znetix stock fraud. At Reimer's sentencing, he was ordered to pay restitution to the 80-year old Paw Paw, Michigan woman in addition to the Znetix victims. In May, 2004, Michael J. Culp was convicted at trial of multiple counts of conspiracy, securities fraud, and money laundering for his role in the Znetix fraud. His sentencing is scheduled for March 4, 2005. Twelve defendants, including Reimer and Culp, were prosecuted in connection with Znetix, a Bainbridge, Island-based company purportedly in the fitness and medical technology industry that falsely claimed to be on the verge of conducting a very lucrative initial public offering. The ringleader of the Znetix scheme, Kevin L. Lawrence, has been in custody since August, 2002, and is currently serving a 20-year prison sentence.

The indictment against BADGER contains allegations that have not yet been proven at trial, and BADGER is presumed innocent until proven guilty beyond a reasonable doubt. BADGER is scheduled for trial before United States District Judge Marsha J. Pechman in Seattle. The trial is scheduled for February 28, 2005, but a defense motion to continue the trial date is pending.

This case is being investigated jointly by the State of Washington Department of Financial Institutions, Securities Division, the Internal Revenue Service, and the Federal Bureau of Investigation. The case is being prosecuted by Assistant United States Attorneys Jeffrey B. Coopersmith and Ye-Ting Woo.

For additional information please contact Emily Langlie, Public Affairs Officer, United States Attorneys Office, Western District of Washington at (206) 553-4110.

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