National Century fraud stretched to 1995

Thursday, February 21, 2008 - 2:12 PM EST
Star witness: National Century fraud stretched to 1995
Business First of Columbus - by Kevin Kemper Business First
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Investors, auditors, clients and courts were fed lies by executives at National Century Financial Enterprises Inc. from 1995 until the company's 2002 collapse, the health-care finance company's former executive vice president for compliance testified Thursday morning.

Sherry Gibson, the government's star witness in its criminal fraud case against five former National Century executives, told federal court jurors the company's principals and senior executives were in on a years-long deception that kept what was once the largest health-care financing business in the nation running.

When National Century began overfunding clients for the accounts receivables it bought, it resulted in cascading debt that forced Gibson and others to cook the company's books, lie to investors and auditors, and in some cases give false testimony in courtrooms when the company became involved in business litigation.

Gibson was an insider at National Century. She began working at National Premeire Financial Services, a precursor to National Century, at age 24 after attending Bowling Green State University to study French and Russian. She began as a temporary secretary and worked her way up over the years to become executive vice president of compliance, a role that required her to interact daily with the company's founders - Lance Poulsen, Rebecca Parrett and Donald Ayers.

As head of the compliance department, it was Gibson's job to oversee the creation of investor reports, work with auditors and make presentations to investors about the company's business model.

National Century specialized in purchasing receivables from health-care providers at a discount, giving the providers cash up front so they could pay their bills. The company packaged the receivables as asset-backed bonds and sold them to investors.

National Century filed for bankruptcy in November 2002 after a raid on its Dublin office by FBI agents and its bond ratings were cut to high-yield "junk" status because they had become risky for investors.

The government has accused five of its executives of engaging in conspiracy, money laundering and securities fraud in an effort to benefit their own to the tune of more than $2.84 billion.

Parrett, Ayers, Roger Faulkenberry, Randolph Speer and James Dierker have all pleaded not guilty to the charges.

Poulsen and James Happ, another company executive, are to stand trial later in the year.

Gibson was also indicted but pleaded guilty in 2003 to a count of conspiracy to commit securities fraud. Since then, she has spent three years in a federal penitentiary in Lexington, Ky., liquidated her holdings, valued at about $420,000, to repay the government, and agreed to cooperate with the Justice Department's investigation of the company.

Gibson told the jury in the Columbus courtroom that Poulsen would not let her department send out required monthly financial reports on company-issued bonds that were not in compliance. As a result, she said the company was forced to make up data to show that bond funds were meeting their covenants, then fabricate backup files for those reports to throw off auditors in the future.

All of those actions were approved of by Poulsen, she said, and began as far back as 1995.

Gibson reiterated earlier testimony from other National Century insiders, saying no one, including her, ever told investors about deficiencies in the bond funds.

Information about the company's bond compliance was on a "need to know basis," Gibson said, with the company going so far as to locate her department in a building separate from the rest of the company.

Gibson is expected to continue her testimony this afternoon.