$183 million of her company’s money disappeared

National Century investor describes final days
Business First of Columbus - by Kevin Kemper

Not realizing National Century Financial Enterprises Inc. was sinking until it was too late, an investor testified in the fraud trial against the company’s former CEO that $183 million of her company’s money disappeared when Dublin-based National Century went under.

Amy Boothe, a former executive at AllianceBernstein Holding LP, told a 16-member jury assembled in U.S. District Court in Columbus on Thursday that just before National Century collapsed, Lance Poulsen attempted to downplay his company’s problems using technical jargon.

Boothe, the government’s final witness against Poulsen, said her company first purchased National Century bonds in 2000. National Century, once the largest financier of health-care providers, purchased accounts receivable from doctors’ offices and hospitals at a discount in exchange for quick cash the providers could use to pay their bills. National Century would then securitize those accounts receivable into bonds that it sold on the open market to investors like Alliance.

Boothe said Alliance purchased National Century’s AAA-rated bonds because the company’s executives reassured her and others that the bonds were safe investments and that the company operated efficiently. By late May 2002, Alliance had been experiencing good returns on its National Century investments, but became concerned when the rating agency Fitch Inc. placed National Century bonds on watch for potential downgrade.

After learning of Fitch’s warning, Boothe and other investors went to National Century’s offices in June 2002 to meet with Poulsen. Boothe said Poulsen reassured them about the company’s health so Alliance continued to hold National Century bonds.

In late October, however, Boothe said Poulsen informed her in a voice mail that National Century’s NPF XII bond fund was experiencing a “technical default.” Boothe said she became worried because she understood that the bond funds were designed so that something like a “technical default” would not happen. A fax sent to Boothe from National Century explained the default as a business decision to extend unsecured credit to clients so they could stay in business.

“We thought it was a willful violation of the (governing) documents,” Boothe said.

So does the government. Prosecutors have alleged that decision was actually part of a nearly decade-long pyramid scheme in which National Century was sending millions of dollars to companies owned by Poulsen without purchasing the accounts receivable. Poulsen is standing trial in Columbus, accused of orchestrating the alleged fraud. The government has charged him with conspiracy, securities fraud and wire fraud. He has pleaded not guilty to all charges

As investors became more concerned, Boothe said they held conference calls with Poulsen and other National Century executives about their investments. In an Oct. 25, 2002 call, Boothe said she asked if National Century was considering a sale of itself to remain viable. She wrote in her notes that Poulsen replied that although National Century had always kept that option open, a sale wasn’t necessary because it was profitable and healthy.

Just two weeks later, National Century would file for Chapter 11 bankruptcy protection.

After the conference calls, a group of investors put together a committee to go visit National Century on Oct. 27. After some brief talks, Boothe said Poulsen kicked the group out. The next day, the group went back to National Century for a presentation by Poulsen on how National Century planned to right itself.

Poulsen talked about “future receivables” in the presentation, Boothe said, which was a term none of the investors had ever heard. The government has alleged that “future receivables” were nothing more than illegal unfunded advances National Century was making to Poulsen-owned companies.

“We at Alliance concluded that most of what (Poulsen) had been telling us wasn’t true,” Boothe said.

Attempting to show that Alliance’s large loss was due more to a lack of due diligence than anything that happened at National Century, Poulsen attorney Peter Anderson quizzed Boothe on the finer points of finance. First Anderson attempted to get Boothe to admit that health care securitization is complicated. Boothe disagreed, arguing that health care securitization is no more complicated than other types of financing, just different.

Anderson then asked Boothe about some of the technical aspects of National Century’s business. He asked if Boothe had ever read the annual audits of National Century by Deloitte & Touche. Boothe said that she had not. He then asked who the bank trustees were for National Century’s bond funds and in what governing documents those responsibilities were laid out.

“I don’t know exactly what they did,” Boothe said of the trustees.

Boothe had a similar answer when Anderson asked her what information and methods ratings agencies used to determine the investment grade of National Century’s bonds. He also cited a passage from the offering memoranda of National Century’s bonds that essentially told investors to rely on National Century’s governing documents to understand how the company worked. Boothe responded that investors should have been able to rely on statements from National Century’s executives when they made a decision to buy the bonds.

Anderson also asked Boothe about some lawsuits that might have been filed against Alliance due to its investment in National Century, and a $258 million fine levied by the SEC against the firm. Before Boothe could get far into her answer, U.S. District Court Judge Algenon L. Marbley called a sidebar meeting of the attorneys. When the meeting concluded, Marbley instructed the jurors that those questions were irrelevant and would be stricken from the record.

Anderson concluded by asking Boothe more questions about her due diligence.

“If you had questions, you could have dug deeper to find certain facts. Is that right?” Anderson asked. “... You just relied on information provided by others?”

His last question was if Boothe was in court to settle a score.

“I was subpoenaed,” she said.