Happ, 48, is charged with conspiracy, money-laundering conspiracy and three counts of wire fraud.

James K. Happ, the 11th National Century executive to be tried or admit guilt




Shaky loans no secret, official says
Ex-executive: Auditors knew of loan woes at National Century
Tuesday, December 9, 2008 10:34 PM
By Jodi Andes

THE COLUMBUS DISPATCH
Outside auditors knew about unsecured loans that National Century Financial Enterprises approved for some health-care providers, a former company official testified today.

Lori McGuire said that reports about the advances typically were given to auditors at an end-of-the-year audit during her nearly 10 years with the company.

McGuire's testimony bolstered claims by former National Century executives that outsiders - including auditors and bank officials - knew the Dublin-based company was making loans that likely never would be repaid.

Her testimony came during the trial of James K. Happ, the 11th National Century executive to be tried or admit guilt in the collapse of the company that cost investors billions of dollars.

Happ, 48, is charged with conspiracy, money-laundering conspiracy and three counts of wire fraud.
Also today, a former friend of Happ's testified that, while working at National Century, Happ boasted that he never could be charged with any fraud because he didn't sign anything.

Much of the day's testimony came from McGuire, who was an associate vice president when the company collapsed in November 2002. On further questioning by Assistant U.S. Attorney Doug Squires, McGuire said she never actually had talked to auditors about the fraud.

Craig A. Gillen, Happ's attorney, used McGuire's statements to point out that the advances were not hidden from investors but disclosed in company documents - if outsiders only had looked.

McGuire said she became suspicious about Happ's business practices in October 2002 when he ordered eight changes be made in National Century's computer system that would benefit Med-Diversified, a health-care provider that Happ was leaving to work for.
Med-Diversified and its subsidiaries, Chartwell and Tender Loving Care, all were advanced millions of dollars in unsecured loans by National Century, prosecutors proved in previous trials of National Century executives.

However, under cross-examination, McGuire conceded that the changes Happ ordered had been talked about for up to two years.

"It's what they were supposed to get and deserved," Gillen said.

National Century bought accounts-receivable from health-care providers and collected the bills for a fee. Bonds were sold to investors so National Century could give providers cash to pay their bills upfront.

McGuire, however, said National Century was advancing millions of dollars without buying the accounts receivable, an amount she referred to as "the black hole."

Happ was in charge of overseeing which accounts receivable were bought by National Century in its final years of business.

His former friend, Frank Magliochetti, former president of Med-Diversified, testified about Happ's boasting.

Magliochetti is expected to continue on the stand Wednesday morning.

jandes@dispatch.com