just before the company fell into bankruptcy, National Century bonds were good investments,

Witness: National Century owed investment firm $183 million
Tuesday, February 19, 2008 - 5:52 PM EST

The weeks preceding National Century Financial Enterprises Inc.'s collapse included heated exchanges between investors and CEO Lance Poulsen, an investment manager testified Tuesday in the fraud trial for five company executives.

Amy Boothe-Fuentes, a former executive at AllianceBernstein Holding LP, told jurors that when her New York firm and other investors became concerned by a warning from Poulsen that National Century's bond funds had fallen out of compliance with financial covenants, they visited the company's Dublin headquarters only to have Poulsen kick them out and threaten to call the police.

Boothe-Fuentes, a witness for the Justice Department, was in charge of researching potential investments for AllianceBernstein's institutional clients, such as pension funds. AllianceBernstein invested in National Century bonds in 2000, she said, because they were considered safe and reliable. National Century bonds had attained AAA ratings from agencies such as Fitch Inc. and Moody's Investors Service because the company was considered the expert in health-care receivables and raters saw little chance of a default.

Indeed, until mid-2002, just before the company fell into bankruptcy, National Century bonds were good investments, Boothe-Fuentes testified in federal court. But in mid-October, Poulsen called to ask AllianceBernstein to sign a waiver that would allow National Century's NPF VI Inc. and NPF XII Inc. bond funds to go out of compliance, she told the jury. After the call, National Century investors formed a committee to investigate the problem, hired forensic accountants and lawyers, and traveled to Dublin to meet with National Century executives a few days later, she said.

After committee members arrived, Boothe-Fuentes said she tried to join a meeting Poulsen was having with another investor. She could hear Poulsen yelling, so she knocked on the door in hopes of joining the meeting, but Poulsen refused to let her into the office. He then kicked the investor committee out of National Century's offices, she testified.

The next day, Boothe-Fuentes said, Poulsen led a meeting with investors where he explained that the NPF VI and NPF XII funds were depleted and needed money from investors. Poulsen told them that if they didn't contribute more, National Century's health-care clients likely would stop sending in money for receivables that National Century purchased.

Bryan Weiss, former chief financial officer of Los Angeles-based MediManagement, testified earlier in the trial that when National Century stopped sending it advances on its health-care receivables in October 2002, he rerouted money that should have gone to National Century back into MediManagement's bank accounts so it could keep its California hospital and clinics running.

Boothe-Fuentes said National Century owed AllianceBernstein about $183 million when it failed. She also testified that AllianceBernstein probably wouldn't have invested in the NPF funds had she known MediManagement was owned by Poulsen and two other National Century executives.

"It's relevant information you would need to know," she said.

Under questioning from defense lawyers, Boothe-Fuentes became visibly frustrated at times with detailed queries into past conversations she couldn't recall. Defense attorneys got her to tell jurors she knew nothing about health-care receivables before joining AllianceBernstein. She also testified she did little to find more information about receivables or the inner workings of National Century during her due diligence examination on the company.

National Century bought accounts receivable from medical providers at a discount, packaging the receivables as bonds and selling the securities to investors while collecting on its customers' bills. The Justice Department has accused the executives of using those accounts to defraud investors and divert money for their own benefit.

Five company executives are facing criminal fraud, conspiracy and money laundering charges: Rebecca Parrett, Donald Ayers, Randolph Speer, Roger Faulkenberry and James Dierker. Poulsen and executive James Happ are scheduled to be tried separately later this year.

All of the executives have denied the charges.