Investors were told the company only bought accounts receivable, not future accounts receivable, a risky proposition ....

Investors were told the company only bought accounts receivable, not future accounts receivable, a risky proposition ....
THAT IS THE QUESTION. WHY WOULD ONE PURCHASE SUCH A RISKY PROPOSITION? WHO WAS REALLY BEHIND HE 'PURCHASE' OF TEH FUTURE RECEIVABLES? JAMES HAPP PERHAPS!


Analysis
Questions linger after executives' fraud trial
National Century jury's swift verdict surprising
Sunday, March 16, 2008 3:43 AM
By Jodi Andes

THE COLUMBUS DISPATCH
It was the verdict some say the investment world needed: National Century Financial Enterprises executives found guilty on all counts in what is now the nation's largest fraud involving a privately held company.

A company can't lose $1.9 billion of investors' money and prompt 275 health-care business bankruptcies without fallout.

The case has taken years for the government to develop, starting with a 2002 raid on the company's Dublin headquarters.

But it didn't take long for the verdicts to be rendered.

The jury decided the fates of five former executives -- the first group to go to trial -- after less than 12 hours of deliberation. And that includes the time it took to pick a foreperson and get answers from federal Judge Algenon L. Marbley on two questions.

Put another way, jurors spent less than 18 minutes on average for each of the 40 counts brought against company founders Rebecca S. Parrett and Donald H. Ayers and former executives James E. Dierker Jr., Roger S. Faulkenberry and Randolph H. Speer.

The speed is even more surprising because this was no straightforward theft case.

National Century was a business that financed health-care providers. So explaining the business -- and what went wrong -- meant jurors got a crash course in health care and finance. Terms such as asset-backed securitizations and capitation aren't ones that most minds easily process.

It was so complex that even witnesses often gave different definitions of industry terms.

Defense attorneys were of one mind on the verdict.

"In any trial, you hope for a jury that will consider all the facts and evidence. Clearly that did not occur in this case, and the jury based their decision solely on emotion," Ayers' attorney, Brian Dickerson, said Friday.

Immediately after the verdicts, defense attorneys began talking about appeals. Sentencing is expected in about three months.

What the jurors considered in reaching the verdicts is not known. None would comment Thursday as they left U.S. District Court in Columbus.

Jurors don't have to comment. But with a case this complex, where five people face sentences that could equate to life in prison, such a swift, unexplained decision left many observers with questions.

The next trial associated with National Century starts Monday when founder Lance K. Poulsen and his friend Karl A. Demmler face witness-tampering counts tied to Poulsen's fraud charges.

Poulsen faces trial in the summer on fraud and other charges related to National Century's demise and the losses suffered by investors. Another former National Century executive, James K. Happ, is scheduled for trial in the fall.

The jury evidently bought the prosecution's version of what happened.

The company offered financing to often-struggling small hospitals, clinics and nursing homes in exchange for their accounts receivable -- basically, the payments that those health-care providers were owed. Investors, including public pension plans, provided National Century's financial backing.

Assistant U.S. Attorney Doug Squires and his team made several points clear about what they say went wrong. Among them:

• Investors were told that National Century kept cash reserves far in excess of what it needed.

• Investors were told the company only bought accounts receivable, not future accounts receivable, a risky proposition given that the health-care providers were having financial difficulty to begin with.

National Century earned an AAA bond rating -- the highest available -- based on those guarantees. The problem was, National Century didn't stick with either pledge, prosecutors said, and nobody told investors that things had changed.

The particulars of the case -- who knew what and when -- is something that is likely to be debated for some time. More trials are ahead.

Those convicted last week were not the ones who literally falsified the books. But the jury evidently believed what memos and e-mails said about some of the defendants and suggested about others: They were too high up not to know what was going on.

Realistically, no jury can be expected to act in a vacuum. Memories of the Enron and WorldCom scandals -- and all the people who lost money as a result -- remain fresh. And headlines remind us that the U.S. economy is facing trouble on a broader scale.

Professor W.C. Benton of Ohio State University's Fisher College of Business might have it right.

He watched the trial from a distance and was left thinking: "It seems like the people who were on trial didn't understand business at all. I think they got in too deep and they didn't know what to do."

That's fine, if you're playing with your own money.

"You can't do that with investor money," Benton said.

jandes@dispatch.com

The jury spent less than 18 minutes on average for each of the 40 counts in a case so complex that even witnesses often gave different definitions of industry terms.