Lincoln Capital and its successor, Lehman Brothers Inc...

"...relied on the ratings of National Century bonds ..."

"...a former investment manager argued ..."
"...investment firm whose clients lost $49.8 million ..."


Thursday, October 9, 2008 - 5:40 PM EDT |
Modified: Friday, October 10, 2008 - 9:45 AM
Attorney: NCFE investor partially to blame
Business First of Columbus - by Kevin Kemper

When National Century Financial Enterprises Inc. collapsed into bankruptcy in 2002, as much as $2.84 billion of investor money was lost.

Thursday afternoon, a former investment manager argued with an attorney representing National Century’s former CEO over whether or not losses were the fault of investors who didn’t do enough research, or National Century executives who sent money out the door without collateral.

“The experts that we all relied on were given information they believed was true, but it turns out it wasn’t,” said Terrence Glomski, a former principal of Lincoln Capital Management, an investment firm whose clients lost $49.8 million when National Century collapsed.

"...Lincoln Capital and its successor, Lehman Brothers Inc., were able to recover just 6 cents on the dollar of its clients’ ..."


Glomski was testifying as a government witness Thursday in the criminal fraud trial of Lance Poulsen, a former owner and chief executive of National Century.

Under cross examination by Poulsen attorney Peter Anderson, Glomski said that when he made the decision to invest his clients’ money in National Century’s bonds, he had relied on the opinion of ratings agencies who gave the bonds their safest and highest ratings possible.

When Glomski testified at a similar trial against other National Century executives in February, he told the jury that Lincoln Capital and its successor, Lehman Brothers Inc., were able to recover just 6 cents on the dollar of its clients’ investments, or about $2.9 million. Lehman Brothers filed for Chapter 11 bankruptcy protection in September and was subsequently sold to Barclays Plc.

Although Glomski relied on the ratings of National Century bonds to help make investments, Anderson suggested he should have done more. He asked Glomski if he had fully researched National Century by reading all of its governing documents, or researched the individual companies whose debt National Century was securitizing into bonds.

To both questions, Glomski answered that he had not. With all of your experience and expertise, Anderson said, you could have done far more due diligence.

“I wish I had,” Glomski responded.

National Century was a financier of last resort for health-care providers such as hospitals and urgent-care centers. It purchased accounts receivable from the providers at a discount in exchange for quick cash the providers could use to pay bills. National Century then packaged the receivables as bonds which it sold to investors.

The government has alleged the investor funds were only allowed to be used to purchase accounts receivable, but National Century executives used some of that money instead to give no-collateral funding to health-care providers owned by Poulsen and other National Century executives.

The government has called that funding a fraud, and accused Poulsen of running it. Poulsen is standing trial in U.S. District Court in Columbus on charges of conspiracy, securities fraud and wire fraud, among others. He has pleaded not guilty to all charges.