Dierker, vice president of marketing, illegally sent millions of dollars to a bankrupt California medical services provider owned by National Century

Tuesday, February 26, 2008
2 National Century execs weren't full participants in alleged fraud, witness

At least two of the executives standing trial on criminal fraud charges in the $2.84 billion collapse of National Century Financial Enterprises Inc. weren't in on every aspect of the alleged scheme, a government witness acknowledged Tuesday.

Sherry Gibson, once National Century's executive vice president of compliance and the company insider the government has characterized as an architect of the massive fraud, conceded during cross-examination that James Dierker and Rebecca Parrett didn't know everything Gibson was doing to allegedly cook the company's books.

Gibson recounted how she didn't get along with Parrett, a co-owner of the Dublin business who was also its treasurer; she said the two routinely argued about accounting procedures.

In earlier testimony, Gibson told the federal court jury that, under the direction of CEO Lance Poulsen, she routinely altered the company's books and investor reports from 1995, and in some instances as far back as 1993. Her actions also included transferring money among company accounts to hide shortfalls, and she conceded under a defense lawyer's questioning that Parrett may not have known about all the maneuvers.

"As far as I know, (Parrett) didn't know about transfers between books," Gibson said.

Those transfers are at the heart of the government's fraud accusations.

National Century was a financier of last resort for health-care providers. The firm specialized in buying receivables from medical businesses at a discount, giving them cash up front so they could pay their bills. It then packaged the receivables as asset-backed bonds and sold them to investors.

The government has accused five executives -- Parrett, Dierker, Donald Ayers, Roger Faulkenberry and Randolph Speer -- of engaging in conspiracy, money laundering and securities fraud in a scheme that led to the company's collapse in 2002. The executives have pleaded not guilty to the charges.

Gibson was indicted, too, but pleaded guilty in 2003 to conspiracy to commit securities fraud. She spent three years in a federal penitentiary in Kentucky, repaid $420,000 to the government and agreed to cooperate with the Justice Department's investigation into National Century.

During the morning session, Gibson got pinned down by attorney Leonard Yelsky over whether Dierker authorized funds to be sent to a bankrupt National Century client. The government has alleged Dierker, vice president of marketing, illegally sent millions of dollars to a bankrupt California medical services provider owned by National Century executives out of NPF XII Inc., a bond fund that had raised money from investors.

National Century was ordered by a bankruptcy court to provide bankruptcy financing for California Psychiatric Management Services, but it wasn't allowed to use investor-raised funds. The company did anyway, and Dierker was in charge of overseeing those transfers, Gibson said.

Yelsky showed Gibson dozens of documents that authorized funding from NPF XII to California Psychiatric and only one included Dierker's signature. On that form, Dierker applied a note that said the advance was required by the bankruptcy court.

Yelsky asked Gibson if her memory should supersede a federal court order and all the documents he'd shown her. She conceded it should not.

Brian Dickerson, defense attorney for Ayers, also got into a back-and-forth with Gibson in the afternoon over testimony she gave to an IRS agent after the company's collapse. A summary of the interview said that Gibson never discussed doctored portfolios with Ayers, one of National Century's owners. But Gibson maintained during her court testimony that the document was incorrect, and that she had talked with Ayers about them.