Bigger than Enron...what about the Tennessee Largest Bankruptcy

Tennessee's Largest Bankruptcy in 1999 held most of NCFE so called purchases.

What about the bankruptcy fraud for the case filed July 29, 1999 in Memphis Bankruptcy Court? All the NCFE Debtor in Posession finance tool used to hide Columbia Homecare Group?

The court room full of lawyers cried FRAUD- the judge forbade the 'F' word in her court.



National Century victims awaiting repayment
Sunday, May 3, 2009 3:22 AM
By John Futty

THE COLUMBUS DISPATCH
When National Century Financial Enterprises collapsed into fraud-fueled bankruptcy, few investors were hit as hard as those in Arizona.

More than 100 of the state's agencies and communities were in an investment pool that held notes worth $131 million in the Dublin-based health-care finance company. Chandler, Ariz., a suburb of Phoenix, took the largest individual hit, losing $13 million.

"There was shock, there was disbelief," said Nachie Marquez, a spokeswoman for the city. "It's taxpayer funds. You put your trust in an investment pool and you think it's safe."

The Arizona investors were among hundreds of institutional victims across the U.S. whose losses totaled $2.38 billion -- the largest known fraud case in the country involving a private company.

The government is "aggressively working" to recover the money from the founders and executives of National Century. They were ordered to pay restitution after they were convicted in federal court in Columbus of conspiracy, securities fraud, mail fraud and money laundering, said Assistant U.S. Attorney Doug Squires.

Last week, U.S. District Judge Algenon L. Marbley issued an order requiring National Century co-founder Lance K. Poulsen, considered the architect of the scheme, and his co-conspirators to forfeit $1.7 billion in assets, the amount prosecutors say represents the proceeds of the conspiracy.

But attorneys for the victims say they are more likely to recover the most significant amounts through lawsuits filed against financial institutions that allegedly are liable for the fraud.

"While we appreciate the government's efforts to squeeze money out of the individual criminal defendants," the financial institutions named in the civil litigation "are able to pay much more than any of these folks have," said Scott Humphries of Houston-based Gibbs & Bruns. The law firm represents investors who lost a total of $1.6 billion.

Investors filed a flurry of lawsuits against National Century, its executives and its financial advisers after the company filed for bankruptcy in 2002. The suits, involving hundreds of plaintiffs in five states, were combined in 2003 and assigned to one federal judge in Columbus.

JPMorgan Chase, a trustee for National Century funds, agreed to pay $425 million to settle its portion of the lawsuit in February 2006, according to an annual report it filed with the Securities and Exchange Commission.

The plaintiffs said JPMorgan Chase was negligent in allowing National Century to make fraudulent transfers among its accounts and for not detecting or revealing the illegal activity to investors.

Settlement money and insurance coverage helped the city of Chandler recoup some of its losses, Marquez said.

"We've recovered about 40 cents on the dollar for our clients," Humphries said.

Civil litigation continues against Credit Suisse, the investment bank that issued National Century's bonds.

Meanwhile, the U.S. attorney's office has collected $2.3 million so far from the criminal defendants, said Fred Alverson, an office spokesman.

The total includes $396,178 that federal agents seized in March from the bank account of Rebecca S. Parrett, a National Century executive who has been a fugitive since shortly after her conviction in March 2008.

The money recovered from the defendants was delivered to the federal clerk's office but has not been distributed to any victims, Alverson said.

National Century purchased the accounts receivable from hospitals, clinics and nursing homes using money obtained by selling asset-backed notes to institutional investors.

Evidence in the criminal trials showed that the company executives diverted money to support their lavish lifestyles and made unsecured loans to the health-care providers, leading to the company's collapse.

The bankruptcy process had begun in 2002 when the FBI obtained a warrant to search the company's Dublin headquarters. Agents collected more than 2,000 boxes of documents and computer files that formed the basis for an investigation involving the FBI, the Internal Revenue Service, U.S. postal inspectors and Immigration and Customs Enforcement.

Institutional investors, which included police and firefighter pension funds, churches, labor unions, cities and counties, and insurance companies, were led to believe the company's bonds were among the safest investments available.

The business model presented to investors was solid but never followed by the company, Squires said.

"(Company executives) did not dip their toes in the pool of fraud, they jumped in from Day One," he said. "From the first investor report, it was fraudulent."

The assets of the conspirators were researched by the federal probation office, but the information is not public record. Defense attorneys have said their clients' assets largely were exhausted while fighting the criminal charges.

Squires said the U.S. attorney's office will attempt to get "every available penny" from those convicted by seizing bank accounts, pensions, 401(k)s and property.

jfutty@dispatch.com


--------------------------------------------------------------------------------
On the Web • Watch a video of Assistant U.S. Attorney Doug Squires at Dispatch.com/video. For complete coverage of the National Century case, visit Dispatch.com/metro.

Wall Street Journal - Richard Scott HEALTHCARE BANDIT

2009-The Wall Street Journal reported that Richard Scott, "the former chief executive of HCA Inc," had formed the non-profit organization Conservatives for Patients' Rights as part of a "lobbying campaign to derail or modify" President Obama's health care proposals, but failed to note that Scott resigned from HCA in 1997 amid a federal investigation into the company's Medicare billing, physician recruiting, and home-care practices. HCA eventually pleaded guilty to fraud charges and paid approximately $1.7 billion in fines and penalties.

THURSDAY, JUNE 26, 2003; WWW.USDOJ.GOV;
WASHINGTON, D.C.
HCA Inc. (formerly known as Columbia/HCA and HCA - The Healthcare Company)
LARGEST HEALTH CARE FRAUD CASE IN U.S. HISTORY SETTLED; HCA INVESTIGATION NETS RECORD TOTAL OF $1.7 BILLION
Note: Hospital Corporation of America (HCA) was acquired by Columbia in 1994.

Why does this matter? The wrath of Richard Scott and friends is to this day still affecting main street America.

Who is Richard Scott? More importantly, who are Richard Rainwater & his wife, Darla Moore?

Before GW Bush was affiliated with Richard Rainwater may I remind you-Richard Scott was the ex-partner of Richard Rainwater with Columbia Homecare Group.

In 1997, Fortune magazine ran a cover story on successful business executive Darla Moore, titled "The Toughest Babe in Business."….She created the corporate bankruptcy finance tool, DIP, debtor in possession while at a Wall Street bank.

Columbia/HCA is a partnership of financier Richard Rainwater of Ft. Worth and lawyer Richard Scott. Scott was recently terminated by Darla Moore, the wife of Richard Rainwater and according to Fortune Magazine, the “Toughest Babe in the Business”.
As part of Richard Scott's severance package from Columbia he was paid $5.13 million and given a five year consulting contract at $950,000 per year. His former president, Mr. Vandewater was paid $3.24 million and given a five year consulting contract at $600,000 per year.

Both former executives are allowed to exercise vested stock options within 90 days. Scott owned or had options on 9.4 million shares of Columbia stock as of May, 1997. Vanderwater controlled 617,375 shares. Columbia has agreed to pay attorney's fees and any fines or judgments against the two. In addition, the two former executives get their office expenses paid for two years including secretaries. If they move within the next two years their moving expenses are paid by Columbia/HCA. Not a bad deal for someone who just got fired! Wow! What a surprise!

Rainwater also owned a large stake in Magellan Health Care which controls Charter Medical. Magellan, run by Darla Moore, is the largest network of psychiatric hospitals in the country. They are becoming more and more involved in obtaining government money for services formerly not covered as health care, according to Fortune Magazine.

Columbia just decided to sell its home health-care business and its head announced she is forming a company of her own. The home care unit is valued at $ 450 million.

At least two other top executives of Columbia have resigned.
On Sept 8, 1998 Standard and Poors downgraded the bonds of Charter/HCA to negative bases on poor earnings. Looks like Rainwater and his Crescent Cos' have finally stumbled. One source within the company said it would be a long while before any new high-ticket acquisitions would take place. A previous deal with Prudential is in danger of being jettisoned.

Why does this matter- September 8, 1998?

We must review the case that just ended in December 2008 in Columbus Ohio with National Century Financial Enterprises which was headquartered in Dublin, Ohio. It began in 2002 when FBI raided the offices of National Century Financial Enterprises Dublin, Ohio

National Century Financial Enterprises:
“This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America,” said Assistant Director Kenneth W. Kaiser of the FBI Criminal Investigative Division.

Just a reminder relating to the need for ‘healthcare financial service’ i.e. (NCFE) National Century Financial Enterprises; home health - which was struggling under the Balanced Budget Act of 1997; about 1,400 agencies closed nationwide in 1998.

3/9/2006
10-K SEC Filing, filed by J P MORGAN CHASE & CO on 3/9/2006: Enron litigation. JPMorgan Chase and certain of its officers and directors are involved in a number of lawsuits arising out of its banking relationships with Enron Corp.; the three current or former Firm employees are sued in their roles as former members of NCFE's board of directors

Net Worth:$1.7 bil
Fortune:self made
Source:HCA Healthcare
Age:70
Country Of Citizenship:United States
Residence:Nashville, Tennessee
Industry:Health Care
Education:Vanderbilt University, Bachelor of Arts / Science, Washington University, Medical Doctor
Marital Status:married, 3 children


Former Air Force flight surgeon took HCA, nation's largest hospital operator, private with Bain Capital, KKR and Merrill Lynch in 2006. At the time the $33 billion leveraged buyout was the largest in history; eclipsed by $45 billion purchase of power giant TXU four months later. "Being private in these times is a blessing. The timing couldn't have been better." Founded Hospital Corp. of America with father and Jack Massey 1968; took public following year. Led management buyout 1989; took public again 3 years later. Merged with Richard Rainwater's 1994, became chief exec again 3 years later. Nashville native left board in January, now focused on philanthropy through family foundation.

Are you aware of the largest private financial fraud in our country's history that ended December 2008? I will give you a hint: It was not 'low income housing' mortgages, it was publicly traded HEALTHCARE Companies including Columbia dumping their losing asset, home healthcare into a private company.

The one and only executive acquitted in this case out of more than 12 convicted was James K Happ; jurors said prosecutor did not do his job! Guess where James K Happ came from? Columbia Homecare Group, he was the CFO!

Where does Assosciated Press get their information...Bigger then Enron...they don't even touch the real story...Richard Scott can you find him here?

Sentencing set for Ohio CEO in $1.9B fraud case
Associated Press - March 11, 2009 12:13 PM ET

COLUMBUS, Ohio (AP) - The former chief executive of a failed health care financing company will learn his sentence later this month in a $1.9 billion fraud case.

U.S. District Court Judge Algenon Marbley will sentence 65-year-old Lance Poulsen on March 27 in Columbus.

Marbley set the date in a court filing Wednesday.

Poulsen was convicted in October on 12 counts of securities fraud, wire fraud and money laundering.

Prosecutors likened the fraud uncovered at National Century Financial Enterprises in suburban Columbus to the Enron or WorldCom scandals.

Poulsen faces up to 135 years in prison, though his actual sentence will likely be shorter under federal sentencing guidelines.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Richard Scott the MEDICAID FRAUD THIEF writes to President....PLEASE !

"Mr. President, Americans don’t want surprises…Please tell us the specifics of
your plan so that all Americans can make a judgment on it for themselves."

The epitome of Fraud Waste and Abuse---Richrd Scott & Richard Rainwater!

Summary: The Wall Street Journal reported that Richard Scott, "the former chief executive of HCA Inc," had formed the non-profit organization Conservatives for Patients' Rights as part of a "lobbying campaign to derail or modify" President Obama's health care proposals, but failed to note that Scott resigned from HCA in 1997 amid a federal investigation into the company's Medicare billing, physician recruiting, and home-care practices. HCA eventually pleaded guilty to fraud charges and paid approximately $1.7 billion in fines and penalties.

THURSDAY, JUNE 26, 2003; WWW.USDOJ.GOV;
HCA Inc. (formerly known as Columbia/HCA and HCA - The Healthcare Company)
LARGEST HEALTH CARE FRAUD CASE IN U.S. HISTORY SETTLED; HCA INVESTIGATION NETS RECORD TOTAL OF $1.7 BILLION
Note: Hospital Corporation of America (HCA) was acquired by Columbia in 1994.

Who is Richard Scott? Who is Richard Rainwater? Who is Darla Moore?


Dear Mr. President:
Americans generally agree that our health care system is too expensive.
You made health care a centerpiece of your campaign and just last week announced a sweeping
$634 billion plan to reform our nation’s health care system. While you were very specific
about how you would pay for this plan, you offered virtually no details on your plan itself.
One of our basic rights as consumers is to be able to shop and compare. As taxpayers, we should have
the ability to not only know the cost of your plan, but the specifics of what we get out of your plan.
That is the only way Americans can make an informed decision.
As you convene your health care summit at the White House, we call upon you to lay out the
details and specifics of your plan for all to see. We are entitled to a healthy debate on how
your plan will impact each of us.
Many Americans are leery about allowing the government to have a more significant role in
making private health care decisions that should only be made by a patient and their doctor.
Americans learned that buried deep inside your stimulus plan was a very ominous sounding
“Federal Coordinating Council.” This “Council” could have a very far reaching impact on
how our doctors treat us in the future.
Mr. President, Americans don’t want surprises. And we don’t want national boards or faceless
bureaucrats taking away our rights to make our own health decisions in the name of
controlling costs.
Sharing the details of your plan is the best way to allay our fears and end the speculation. Please
tell us the specifics of your plan so that all Americans can make a judgment on it for themselves.
Respectfully,
Rick Scott

Conservatives for Patients’ Rights

http://cprights.org/pdf/openletter20090305.pdf

Who is Richard Scott? What the Wall Street Journal won't reveal

Group launches health care offensive
By JONATHAN MARTIN | 3/3/09 4:18 AM EST
Firing some of the first shots in the coming showdown over health care, a conservative group led by the former owner of the Hospital Corporation of America is beginning a multimillion-dollar campaign Tuesday in opposition to government-run coverage.

Conservatives for Patients Rights is going on TV, radio and the Web in the same week President Barack Obama hosts a health care summit at the White House. The group’s leader, Richard Scott, is hoping a pro-free-market message will rally the right to join the fray on what may be the most hard-fought policy battle in the first year of the new administration.

“If we have more government involvement we’re going to have dramatically worse health care,” said Scott, the wealthy health care executive who is overseeing the effort and seeding it with $5 million of his own cash.

Scott, a major GOP donor, is pushing for four principles to any health care reform package: individual choice, competition between carriers, giving patients’ ownership over their own coverage and rewarding those who make healthy lifestyle choices.

“I want health care reform to happen but I want it the right way,” Scott said.

Toward that goal, Scott’s group is enlisting a group of veteran Republican consultants to fashion a multi-media battle, warning against the move toward more government involvement. The new group starts a three-week TV and radio campaign featuring Scott Tuesday and will plaster the Internet with ads while also launching its homepage.

The goal is to provide conservatives with a central organization to resist any move by Obama and congressional Democrats toward universal coverage. Scott said the group would spend up to $20 million on the campaign, and volunteered that he would consider reaching further into his pocket.
Scott shied away from comparing his effort to the famous industry-led “Harry and Louise” ad campaign that helped torpedo universal coverage in the Clinton administration, saying that while they may receive some aid from health care stakeholders, the “goal is to get support from individuals.”

Scott’s first salvo is being fired Tuesday largely on conservative talk radio shows and on cable news.

“Imagine waking up one day and all your medical decisions are made by a central national board,” Scott says in the radio ad. “Bureaucrats decide the treatments you receive, the drugs you take, even the doctors you see.”

He goes on to raise the prospect of “national boards” and “waiting lists” as in the nationalized systems of Great Britain and Canada. “That’s what some in Washington mean by reform,” Scott says in the spot.



Page 2

Some on the left have already formed their own group, Health Care for America Now, a coalition to push for guaranteed health care for all Americans. The group has a $35 million budget this year and is planning on spending half of that on advertising in addition to holding grass-roots events in Washington, and in the districts of key members of Congress.

“We are fully operational, organized, and mobilized to make sure Congress supports the president’s plan to win quality, affordable health care for all this year,” said Jacki Schechner, the group’s communications director

Pro-health reform activists also have begun circulating information in an effort to discredit Scott, a move that underscores the huge stakes involved in the issue.

According to a 2000 article in Forbes, Scott was forced to resign as head of what became known as Columbia/HCA after fraud charges against the massive health care company in 1997. He was replaced by Thomas Frist Jr., the original founder of HCA and brother of future Senate Majority Leader Bill Frist (R-Tenn.)

The company eventually paid over $880 million to reach a settlement with the Justice Department in 2002 on the charges.

Obama already has sought to rebut criticism that he wants a government takeover of health care by outlining eight principles of any overhaul, including letting patients stick with their own doctors and health care plans, reducing insurance premiums and guaranteeing that Americans will have a choice of health plans and physicians.

Beyond that, the Obama administration has signaled that it will push back hard on conservatives who try to label Obama’s efforts as “socialized medicine” or a massive government takeover of day-to-day health decisions. In his radio address Saturday, Obama said he’s ready for a fight against anyone who tries to block his efforts to remake health care and other programs.

But that’s exactly one of Scott’s key arguments. He said he’ll try to draw a comparison between Obama’s plan and nationalized health care systems in Great Britain and Canada, during the second round of its campaign, Scott said in an interview.

“We’ll give people information about how single-payer systems…impact the average person that needs expensive care,” he said.

To do so, Scott has enlisted former CNN reporter Gene Randall and another former producer from the cable network to travel to the two countries to gather footage.

Scott is now primarily an investor, but he does own an urgent care company with over 20 facilities across the country. He said he draws a “very insignificant amount of money from Medicare and Medicaid” and that his primary interest is not his own bottom line.

“What I care about is the free-market system,” he said.

Editor’s Note: Conservatives for Patients’ Rights purchased advertising space on POLITICO.com for this campaign.

MISSED THE BIGGER PICTURE FOLKS!!!!

"Happ’s trial is expected to last most of December..."
The ONLY EXECUTIVE TO WALK AWAY....hmmm.....

Really? Funny how that LAST trial went to fast? Did not matter that Happ came from HCA ---RICHARD RAINWATER'S 'pet' Columbia Homecare Group...he dumped those into the Bankruptcy Court 6 mos prior in Western Tennessee's Medshares PONZI SCHEME!!!

What a bunch of CRAP!!!


Monday, December 1, 2008
NCFE’s Happ starts his day in courtBusiness First of Columbus - by Kevin Kemper




The fourth and final criminal trial involving a former executive of National Century Financial Enterprises Inc. began Monday at U.S. District Court in Columbus as lawyers picked jurors to decide the fate of James Happ.

The government has accused Happ of a count each of conspiracy and money laundering conspiracy plus three counts of wire fraud.

He has pleaded not guilty to all of the charges.

The former executive vice president of Dublin-based National Century is standing trial on accusations he was part of an executive-level cabal at the medical financing company that defrauded investors out of $2.84 billion.

Happ’s trial began at 9 a.m. with jury selection, which was expected to last the day. It will be followed by opening arguments from government attorneys and then defense lawyers, likely to begin Tuesday.

Happ becomes the seventh National Century executive to stand trial on fraud charges and the 11th to be charged with crimes. Six other former executives, including company founders Lance Poulsen, Rebecca Parrett and her ex-husband Donald Ayers, were found guilty by juries earlier in the year.

A financier for health-care providers like doctors’ offices and hospitals, National Century’s bread and butter was buying accounts receivable from care providers at a discount, then securitizing the receivables into AAA-rated bonds for sale to investors. At its peak, the company employed more than 350 workers at its office campus in Dublin while recording annual revenue of more than $250 million.

The government has alleged the company collapsed into bankruptcy in 2002 after running a sophisticated pyramid scheme that fell apart.

In addition to purchasing legitimate accounts receivable, the government alleged National Century funded companies owned by its founders without getting receivables in return, effectively making risky unsecured loans with investor cash. The company charged its clients for those advances, the government has said, which inflated National Century’s revenue and generated bonuses for senior executives.

Happ’s trial is expected to last most of December.

Where were HCA and IHS in this ponzi scheme? You rememeber...

They were the TWO largest Healthcare GIANTS in our healthcare system.

http://www.404.gov/litigation/complaints/comp19509.pdf




UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
__________________________________________
:
UNITED STATES SECURITIES :
AND EXCHANGE COMMISSION, :
:
Plaintiff, :
: CIVIL ACTION
v. : FILE NO. 2:05CV1142
:
LANCE K. POULSEN, :
REBECCA S. PARRETT, :
DONALD H. AYERS, and :
RANDOLPH H. SPEER, :
:
Defendants. :
__________________________________________:
PLAINTIFF SECURITIES AND EXCHANGE COMMISSION’S COMPLAINT
FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF
Plaintiff, the United States Securities and Exchange Commission
(“Commission”), alleges the following:
Summary
1. Beginning in or before 1999 and continuing through 2002 (“the relevant
period”), Defendants Lance K. Poulsen (“Poulsen”), Rebecca S. Parrett (“Parrett”),
Donald H. Ayers (“Ayers”) and Randolph H. Speer (“Speer”) directed or aided and
abetted the now-bankrupt National Century Financial Enterprises, Inc. (“National
Century”) and its special purpose subsidiaries NPF VI, Inc. (“NPF VI”) and NPF XII,
Inc. (“NPF XII”) in an extraordinary scheme to defraud investors who eventually lost
approximately $2.6 billion.
2. National Century funded its special purpose subsidiaries through private
placement note offerings. In the offering documents used to market these note offerings,
2
Defendant Poulsen and National Century, aided and abetted by Defendants Parrett,
Ayers, and Speer, represented to investors in the notes that National Century would use
the funds raised through the note offerings exclusively for the purchase of the third-party
reimbursable portions of receivables arising from the provision of health care services
payable by a government entity or large commercial insurer (“eligible receivables”).
Although National Century used some investor funds to purchase eligible receivables, the
Defendants, directly and through others, used a substantial portion of investor funds to
make unsecured loans and loans secured by collateral other than eligible receivables,
contrary to the representations to investors and contrary to the requirements of the trust
indentures (“indentures”) that governed National Century's note offerings.
3. The programs NPF VI and NPF XII purchased eligible receivables from
health-care providers and issued notes that securitized those receivables. From 1999
through 2002, the programs NPF VI and NPF XII offered and sold at least $3.25 billion
in notes through at least fifteen private placements.
4. Defendant Poulsen and National Century, aided and abetted by Defendants
Parrett, Ayers, and Speer, further represented to investors that NPF VI and NPF XII
would maintain certain reserve account balances and certain levels of eligible receivables
meeting specific requirements as collateral to secure the notes. Despite these obligations,
Defendants, directly and through others, depleted NPF VI’s and NPF XII’s reserve
accounts and collateral base by “advancing” as much as $1.2 billion in offering proceeds
to health-care providers without receiving eligible receivables in return. These improper
and undisclosed advances were essentially unsecured loans to distressed or defunct
health-care providers — several of which were wholly or partly owned by National
3
Century or its principals, including Defendants Poulsen, Parrett, and Ayers. In the fall of
2002, at a time when approximately $3 billion in notes were outstanding, investors
discovered that National Century was using investor funds to make such non-permitted
loans and engaging in other misconduct. At the direction of the investors, indenture
trustees (“trustees”) for NPF VI and NPF XII declared an event of default by National
Century and a principal amortization event, resulting in the immediate wind-down of
NPF VI and NPF XII.
5. The Defendants’ unsecured advances and acceptance of ineligible collateral
caused cash and collateral shortfalls which Defendants and other senior National Century
officials concealed by a variety of methods, including: repeatedly transferring funds
between the NPF VI and NPF XII reserve accounts to mask reserve shortfalls of up to
$350 million; recording and reporting $1 billion or more in non-existent or ineligible
receivables on the programs’ books; creating and distributing misleading offering
materials, monthly investor reports, and accounting records; and otherwise
misrepresenting the status of NPF VI’s and NPF XII’s cash and collateral bases.
6. In the fall of 2002, when investors discovered the massive reserve account
transfers and collateral shortfalls, National Century and its programs stopped funding
health-care providers and filed for chapter 11 bankruptcy protection. As a result,
approximately 275 health-care providers were also forced to file for bankruptcy
protection. Investors have lost approximately $2.6 billion as a result of the fraudulent
scheme alleged in this Complaint.
7. Defendant Poulsen, as a National Century principal, chairman of the board,
and chief executive officer, personally directed National Century’s scheme to defraud
4
investors. He supervised the issuance of misleading offering documents, signed the
accompanying agreements, and authorized the resulting note issuances. He hid reserve
account shortfalls from investors by authorizing fraudulent reserve account transfers; he
misappropriated funds from at least one new securitization; he made a seven-day loan to
National Century, undisclosed to investors and rating agencies, to help conceal a reserve
account shortfall; and he signed false investor reports. Further, Defendant Poulsen
allowed National Century to disguise collateral shortfalls by recording ineligible or
fictitious collateral into its databases, and he personally authorized as much as
$168 million in uncollateralized advances, including to health-care providers in which he
held a financial stake. Finally, he signed false management representation letters in
connection with the audits of National Century’s consolidated financial statements for
1999 and 2000 when he knew that the financial statements were materially misleading
and would be disseminated to trustees, rating agencies, and investors.
8. Defendant Parrett, as a National Century principal and member of its board of
directors, directly authorized the issuance of notes despite receiving numerous internal
memoranda documenting National Century’s fraudulent reserve account transfers,
fabricated audit documents, false investor reports, and widespread collateral shortfalls.
From at least the beginning of 1999 through June 2001, and later in the fall of 2002, she
directed subordinates to record ineligible and non-existent collateral into receivablestracking
databases and to backdate the age of older, stale receivables, despite knowing
that the false collateral information would be used to create false offering memoranda
and false investor reports. Defendant Parrett also authorized as much as $145 million in
uncollateralized advances to health-care providers, including advances to providers in
5
which she held a financial stake. Further, she directly supervised the creation and
distribution of false investor reports and the creation of false audit detail to support the
false investor reports.
9. Defendant Ayers, as a National Century principal, vice-chairman of the board,
and chief operating officer, directly authorized the issuance of notes despite receiving
numerous internal memoranda that discussed uncollateralized advances, reserve account
shortfalls, distortions of National Century’s receivables databases, and false investor
reports. Ayers also allowed National Century to mask reserve account shortfalls by
transferring funds between reserve accounts and by misappropriating funds from a new
note issuance. Further, Defendant Ayers made a seven-day personal loan to National
Century, undisclosed to investors and rating agencies, to help conceal a reserve account
shortfall. Finally, he personally approved as much as $69 million in uncollateralized
advances to health-care providers, including advances to providers in which he held a
financial stake.
10. Defendant Speer, National Century’s chief financial officer, received
numerous internal memoranda documenting National Century’s uncollateralized
advances, cash-flow difficulties, and reserve account shortfalls. He provided, or directed
subordinates to provide, misleading information to independent auditors during their
audits of National Century's 1999 and 2000 consolidated financial statements; he also
signed false management representation letters in connection with the 1999 and 2000
audits when he knew that they were materially misleading and would be disseminated to
trustees, rating agencies, and investors.
6
11. Defendant Speer authorized or allowed the transfer of funds between reserve
accounts to mask reserve account shortfalls; approved the use of offering proceeds from
at least one securitization to cover reserve shortfalls; and personally authorized as much
as $700 million in uncollateralized advances to health-care providers.
12. The Commission brings this action pursuant to Section 20(b) of the Securities
Act of 1933 (“Securities Act”) [15 U.S.C. § 77t(b)] and Sections 21(d) of the Securities
Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §78u(d)] for a judgment
permanently restraining and enjoining Defendants, ordering disgorgement of unlawful
profits, imposing civil penalties, prohibiting Defendants from acting as officers or
directors of any reporting company, and for other relief.
13. Defendants directly and indirectly have engaged and, unless enjoined, will
continue to engage in transactions, acts, practices, and courses of business which
constitute violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and
Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 [17 C.F.R.
§240.10b-5] promulgated thereunder.
Jurisdiction and Venue
14. The Court has jurisdiction over this action pursuant to Section 22(a) of the
Securities Act [15 U.S.C. §77v(a)] and Sections 21(e) and 27 of the Exchange Act
[15 U.S.C. §§78u(e) and 78aa].
15. Defendants, directly and indirectly, have made use of the means and
instruments of transportation and communication in interstate commerce, of the means
and instrumentalities of interstate commerce, and of the mails in the offer and sale, and in
connection with the purchase and sale, of securities, in connection with the transactions,
7
acts, practices, and courses of business alleged herein, within the jurisdiction of the
Southern District of Ohio and elsewhere.
16. The anti-fraud provisions of the federal securities laws as set forth herein
apply to any offer, purchase, or sale of a security, regardless of whether that security is
registered with the Commission.
Relevant Entities
17. During the relevant period, National Century was a privately held Ohio
corporation headquartered in Dublin, Ohio.
18. During the relevant period, National Century organized and owned several
subsidiaries, including NPF VI and NPF XII, both of which were Ohio corporations.
19. During the relevant period, the Defendants and other senior National Century
officials controlled National Century and its subsidiaries, including NPF VI and NPF XII.
The Defendants
20. During the relevant period, Defendant Lance K. Poulsen resided in Ohio and
Florida. Poulsen was a co-founder of National Century and served as its Chairman of the
Board of Directors and as its Chief Executive Officer. Poulsen also served as a Director
and the President of the subsidiaries of National Century, including NPF VI and NPF XII.
Along with Defendants Ayers and Parrett, Poulsen controlled National Century and its
subsidiaries through his positions of authority in National Century and his direct and/or
indirect ownership of National Century shares.
21. During the relevant period, Poulsen received total compensation from
National Century and its subsidiaries of at least $8,254,729, consisting of: $4,556,663 in
base salary; $3,382,134 in bonuses; and $315,932 in other compensation. Defendant
8
Poulsen also held a financial stake in health-care providers to which the Defendants
directed fraudulent, uncollateralized advances of investor funds.
22. During the relevant period, Defendant Rebecca S. Parrett resided in Ohio and
Arizona. Parrett was a co-founder and director of National Century and served as
Director of its Accounts Receivable Servicer Department. Along with Poulsen and
Ayers, Parrett controlled National Century and its subsidiaries through her positions of
authority in National Century and her direct and/or indirect ownership of National
Century shares.
23. During the relevant period, Parrett received total compensation from National
Century and its subsidiaries of at least $11,814,701, consisting of: $4,270,915 in base
salary; $2,398,645 in bonuses; and $5,145,141 in other compensation. Defendant Parrett
also held a financial stake in health-care providers to which the Defendants directed
fraudulent, uncollateralized advances of investor funds.
24. During the relevant period, Defendant Donald H. Ayers resided in Ohio and
Florida. Ayers was a co-founder and director of National Century and served as its Chief
Operating Officer. Along with Poulsen and Parrett, Ayers controlled National Century
and its subsidiaries through his positions of authority in National Century and his direct
and/or indirect ownership of National Century shares.
25. During the relevant period, Ayers received total compensation from National
Century and its subsidiaries of at least $9,407,695, consisting of: $3,431,931 in base
salary; $3,031,814 in bonuses; and $2,943,950 in other compensation. Defendant Ayers
also held a financial stake in health-care providers to which the Defendants directed
fraudulent, uncollateralized advances of investor funds.
9
26. During the relevant period, Defendant Randall H. Speer resided in Ohio.
Speer served as National Century’s Chief Financial Officer and Executive Vice-President
of Finance from 1999 to 2002. Speer served as Executive Vice President of NPF VI and
NPF XII from June 2001 to November 2002. Along with Defendants Poulsen, Parrett,
and Ayers, Defendant Speer controlled National Century and its subsidiaries through his
positions of authority in National Century.
27. During the relevant period, Speer received total compensation from National
Century and its subsidiaries of at least $1,758,039.00, consisting of: $838,206.00 in base
salary; $593,995 in bonuses; and $325,838.00 in other compensation.
National Century’s Securitization Programs
28. Through its wholly owned subsidiaries NPF VI and NPF XII, National
Century purchased eligible receivables from health-care providers and then securitized
those receivables by selling highly rated notes to institutional investors, municipalities,
and others (the “programs”). The notes were rated “AAA” by at least one rating agency.
The “AAA” rating represented the category of debt with the lowest risk of default of any
debt rated by the rating agency.
29. The notes were securities under the federal securities laws and were to be
secured by the eligible receivables purchased by the subsidiaries.
30. The subsidiaries were structured as bankruptcy remote entities and were
required to act independently of each other and National Century.
31. Another separate, wholly owned National Century subsidiary serviced the
receivables for the programs.
10
32. The programs were governed by a series of agreements (the “program
agreements”) among National Century, NPF VI, NPF XII, health-care providers, and
investors. The program agreements included documents such as a master indenture
outlining the respective duties of the program and its investors; a supplemental indenture
outlining any modifications to the master indenture; and sales and subservicing
agreements outlining the respective duties of the programs and participating health-care
providers.
33. In most instances, the program agreements defined an “eligible receivable” as
the “third-party reimbursable portion of a Receivable arising from the provision of health
care services” that was payable by a government entity or large commercial insurer.
34. The program agreements required that the subsidiaries purchase only the
eligible receivables of a hospital, physicians’ group, or other health-care provider on a
weekly basis for a percentage of the receivables’ collectible value.
35. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
by the program agreements, that before purchasing a receivable, the programs would
obtain detailed billing information from the health-care provider, including the insurance
or government payor, diagnosis code, billing date, patient account number, and patient
discharge date.
36. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
by the program agreements, the programs would determine the eligible receivables’
collectible value, retain approximately 17% of that value for various reserve accounts,
11
subtract program costs and debits for previously rejected or defaulted receivables, and
send the seller a funding wire for the balance.
37. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
by the program agreements, the programs’ reserve accounts would be fully funded at all
times and could only be used for certain specified, limited purposes.
38. The program agreements also required the use of independent trustees and
lockbox accounts. Each program retained a major bank as its program trustee, and the
trustees held security interests in purchased receivables on behalf of investors.
39. Health-care providers directed payments for all receivables they generated
into lockbox accounts, which were swept daily into the programs’ general purchase
accounts, which were held by the trustees.
40. National Century and the programs had no direct access to the program
accounts; instead, National Century sent wire requests to the trustees, who reviewed the
wire requests before releasing funds from the trust accounts.
41. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
by the program agreements, the programs would diversify their receivables holdings and
meet strict concentration requirements that limited the percentage of receivables the
programs could purchase of any particular type (e.g. home-health-care services) or from
any particular payor (e.g. Medicaid).
42. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
12
by the program agreements, health-care providers would immediately replace receivables
older than 180 days (“defaulted receivables”), with other eligible receivables; and that if
they did not, the programs would deduct the value of the defaulted receivables from the
providers’ ongoing funding.
43. Although National Century was a private company making only private
placements to sophisticated investors, the indentures required National Century to engage
independent auditors to audit the Company’s consolidated financial statements on an
annual basis. These annual audits did not include audits of each National Century
program, but rather an audit of National Century’s consolidated financial statements,
which included NPF VI and NPF XII as well as National Century business that occurred
outside of NPF VI and NPF XII. The indentures required National Century to submit the
audited financial statements to the trustees, who were to forward them to the rating
agencies that rated National Century's debt.
44. In addition, the indentures required performance of certain “agreed upon
procedures” by independent auditors on the individual programs. The agreed upon
procedures consisted of a random test of a small number of receivables each quarter and
of one monthly investor report each year. The indentures required that National Century
provide the independent auditor’s report on the agreed upon procedures to the trustees
and the rating agencies which rated the programs.
45. National Century provided its audit reports, audited financial statements, and
agreed-upon procedures reports to trustees, investors, and rating agencies to support the
programs’ issuances of notes.
13
46. However, despite the foregoing representations to investors, National Century
and the Defendants in fact did not comply with the foregoing terms as required by the
program agreements.
The Scheme to Defraud Investors
47. The objective of National Century's scheme to defraud was to enrich the
Defendants by: (1) paying Defendants substantial salaries and bonuses based on National
Century's false financial performance; (2) making uncollateralized advances to healthcare
providers in which Defendants Poulsen, Parrett, and Ayers held financial interests;
(3) increasing National Century’s value by charging fees to health-care providers; and
(4) taking the company public or selling the company in a private transaction.
48. To achieve these objectives, National Century and Defendants engaged in a
complex scheme to defraud investors which they accomplished by several means.
Misleading Offering Materials and Representations
49. During the relevant period, National Century provided written offering
materials to investors in at least fifteen private placements by NPF VI and NPF XII
totaling at least $3.25 billion in notes.
50. The offering materials for each private placement were substantially similar in
organization and substance: among other things, each included a program description and
contained detailed statistics concerning the program’s receivables pool.
51. The offering materials made many material misstatements of fact and omitted
to disclose facts without which statements contained in the offering materials were
rendered misleading.
14
52. The offering materials represented that the programs would use offering
proceeds exclusively to either repay outstanding principal balances on other notes within
the issuing program or to purchase eligible receivables (after deducting appropriate
reserve amounts).
53. Despite these representations, Defendants, directly and through others, used
offering proceeds for a variety of undisclosed, improper purposes, including replenishing
depleted program reserve accounts; making uncollateralized advances; paying fees to
National Century or its subsidiaries; and making unsecured loans to National Century, its
subsidiaries, or its other securitization programs.
54. For example, the offering materials for an NPF XII note issuance of
$200 million on November 24, 1999, stated that the offering proceeds would be deposited
“into the Purchase account in order to provide additional funds with which [NPF XII]
expects to purchase Eligible Receivables from approximately 669 healthcare providers”
pursuant to the program agreements.
55. The proposed note issuance was discussed in a November 15, 1999,
memorandum from a National Century employee to the Defendants:
Currently, across all NPF funding programs, the reserve and equity balances are
deficient by over $100 million. The funds required to meet all the test equals [sic]
$286 million while the sum of funds available as of November 15, 1999, is
$185 million.
The proposed solution for shortfall is the $200 million Series 1999-3
securitization scheduled to close in NPF XII, Inc. during November 1999.
56. The employee then noted that $101 million from the offering proceeds was
“scheduled” to cover shortages in program reserve accounts for NPF VI, NPF XII and
another program.
15
57. NPF XII issued the notes on or about November 24, 1999 and then, with
Defendants Poulsen and Speer’s approval, National Century used $101 million or more in
offering proceeds to cover shortfalls in the reserve accounts of NPF VI, NPF XII, and
another program.
58. The largest investor in that offering purchased $100 million in notes based on
National Century’s assurances that the offering proceeds would be used to purchase
eligible receivables.
59. Another example occurred in June 2001, when NPF VI issued a variablefunding
note to a large institutional investor which invested $300 million based on
National Century's assurances that the offering proceeds would be used to purchase
eligible receivables.
60. Within one day of NPF VI receiving the $300 million, National Century
transferred over $172 million of the note proceeds to NPF XII. NPF XII then
immediately used the funds to replenish its reserve accounts for investor report testing
purposes and to pay fees to a National Century subsidiary. NPF VI received no eligible
receivables or other collateral in return.
61. Similar transfers of offering proceeds from one program to another within two
days of receipt occurred in at least 1999, 2000, 2001, and 2002.
62. The offering materials contained historical data showing that in prior years,
the programs that, on average, the programs’ receivables base turned over between three
and five times per year.
63. But in fact, during the relevant period, the programs’ receivables base turned
over less than once per year.
16
64. In offering materials, Poulsen, aided and abetted by Defendants Parrett, Ayers,
and Speer, disseminated to investors other misleading information regarding the
programs’ receivables pool, including false total eligible receivables, false age
distribution data, and false concentration data.
65. National Century's Director of Compliance wrote to Defendant Poulsen in
August 2001 that National Century needed to falsify pool statistics in its offering
materials to match the statistics already published in false monthly investor reports:
As you may expect, we are having problems generating the pool
statistics for the new [note issuance] in NPF XII. . . .
Due to the continual shortage of cash in the reserves, the [NPF XII]
investor reports [have] OVERSTATED the receivables compared to
the actual balances in the AS400 and/or funding systems . . .
. . . While the actual balances in NPF XI1 are closer to
$1.489 billion, the receivables balance in the current investor report
for NPF XII is $2,000,382,873. This means we have to add
receivables . . . [to the pool statistics] in order to match the current
investor report in NPF XII.
66. The Director then falsified the pool statistics used in offering materials for the
referenced note issuance and Defendant Poulsen then authorized that note issuance.
67. During the relevant period, at least half of the receivables reported in the
many of the private placement memoranda authorized by Defendant Poulsen and
circulated to investors at his direction were either non-existent or ineligible receivables.
68. The offering materials also contained false descriptions of the use of the
programs’ reserve accounts, including representations that the reserve accounts would be
maintained at approximately 17% of the value of all purchased receivables and would
only be used for specified, limited purposes.
17
69. During the relevant period, the misrepresentations and omissions in the
offering materials were frequently repeated and affirmed by Defendant Poulsen and other
National Century representatives in dozens of presentations, seminars, road shows, due
diligence visits, and discussions with investors and potential investors.
Uncollateralized Advances
70. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
by the program agreements, the programs would use offering proceeds only to repay
outstanding principal balances on other notes within the issuing program or to purchase
eligible receivables (after deducting appropriate reserve amounts).
71. Despite these representations, however, Defendants, directly and through
others, depleted National Century’s reserve accounts and collateral base by advancing
program funds to health-care providers without receiving eligible receivables in return.
72. As early as 1994, National Century employees began documenting these
unsecured advances in written advance request forms. The forms documented the
amount of the advance, the health-care provider receiving the advance, and the National
Century official authorizing the advance.
73. The forms were only generated when a program made an unsecured advance.
74. According to more than eleven hundred of these forms, from 1999 to 2002,
Defendants and others collectively authorized uncollateralized advances of as much as
$1.2 billion from the programs. For the period from 1997 to 2002, defendants and others
collectively authorized as much as $2 billion in uncollateralized advances.
18
75. Some of these advances were made to companies in which National Century
or Defendants Poulsen, Parrett, and Ayers held an interest.
76. In fact, the reserve accounts were at levels significantly short of the required
levels. The Defendants, directly and through others, routinely maintained the reserve
accounts at levels significantly below the required levels. In addition, Defendants,
directly and through others, used funds from the reserve accounts for improper purposes,
including purchasing receivables, making unsecured advances to clients, and masking
shortfalls in other programs’ reserve accounts.
77. In particular, the Defendants, directly and indirectly through others, converted
millions of dollars of investor funds by making fraudulent, uncollateralized advances to
entities in which they held financial interests. For example, in just the final six months of
1999, Poulsen and Ayers advanced at least $61.8 million to Doctors Community
Healthcare Corporation, a business in which National Century itself held an 11% equity
interest.
Date of
Advance
Authorizer Amount
7/2/1999 Poulsen $1,000,000
8/9/1999 Poulsen $2,000,000
8/20/1999 Poulsen $2,000,000
9/3/1999 Poulsen $1,700,000
9/17/1999 Poulsen $2,300,000
9/23/1999 Poulsen $1,500,000
9/29/1999 Poulsen $2,500,000
9/30/1999 Poulsen $1,300,000
10/1/1999 Poulsen $6,285,987
10/1/1999 Poulsen $2,500,000
10/8/1999 Poulsen $1,300,000
10/25/1999 Poulsen $5,000,000
11/5/1999 Poulsen $3,000,000
11/10/1999 Poulsen $1,500,000
11/12/1999 Poulsen $11,011,763
11/22/1999 Poulsen $3,500,000
19
12/29/1999 Poulsen $3,500,000
6/28/1999 Ayers $500,000
7/5/1999 Ayers $2,000,000
9/23/1999 Ayers $1,500,000
10/13/1999 Ayers $1,500,000
10/15/1999 Ayers $2,000,000
10/21/1999 Ayers $1,000,000
12/23/1999 Ayers $1,500,000
Total $61,897,750
78. The fact that Defendants and National Century held interests in some healthcare
providers was disclosed in offering materials. The offering materials, however, did
not disclose either the existence or the amounts of the Defendants’ fraudulent,
uncollateralized advances to those health-care providers.
79. Soon after she issued the Month End Status Report for June 2000, National
Century's Director of Compliance directed a memorandum to the Defendants regarding
the failing state of NPF VI and NPF XII for July 2000 and the fact that advances to
entities owned by NCFE, Poulsen, Parrett and/or Ayers continued to consume these
programs’ funds.
As discussed during our most recent Strategic Management meeting, the NPF
funding programs are experiencing serious cash flow problems. It was my
understanding that advances and/or initial fundings [sic] were to be limited,
particularly during the month of July 2000.
ADVANCES MONTH TO DATE JULY 2000
$1,000,000 to Meridian on July 13, 2000
$1,000,000 to Meridian on July 20, 2000
This does not include advances hidden in the funding wires for Doctors
Community Healthcare Corporation or Tender Loving Care. These advances
are apparently VERBAL requests to the Funding Department and are not
documented….
Your assistance is required to limit, if not eliminate, the advances to our NPF
Sellers. I have attached the most recent portfolio status report which indicates
that we are $152.2 million short in restricted cash.
20
80. National Century owned 11% of the shares of Doctors Community Healthcare
Corporation. National Century also owned 4% of the shares of Tender Loving Care and
National Century principals Poulsen, Parrett, and Ayers indirectly owned an additional
33% of Tender Loving Care (“TLC”) through their ownership in healthcare provider Med
Diversified, Inc. (“MDI”), which owned TLC.
81. Defendant Poulsen and his wife each were the beneficial owners of 8.11% of
MDI. Defendant Parrett similarly held 6.54% of MDI. In addition, Defendants Parrett
and Ayers held respectively 6.69% and 7.03% of the common stock of MDI through
trusts. Finally, Defendant Poulsen, his wife, and Defendant Parrett each owned a 25%
interest in a limited liability corporation that was the beneficial owner of 6.73% of MDI.
82. Thus, Defendants Poulsen, Parrett and Ayers owned approximately 33% of
MDI’s common stock. From June through October 2002, Defendants Poulsen and Speer
and another National Century employee advanced as much as $109 million in investor
funds to MDI.
83. Each Defendant was aware that advances were not allowed by the program
agreements.
84. In personal notes dated August 8, 2000, Defendant Parrett succinctly
summarized the damage that these unsecured advances caused to National Century and
its programs:
Once a client has received advances with no [supporting receivables], it becomes
almost impossible to cut them off when they ask for future advances -- hence, we
have several clients who are ruining our company because we advance them funds
they shouldn't receive.
21
85. Parrett’s summary proved to be an accurate prediction: National Century's
unsecured advances caused massive cash and collateral shortfalls in the programs.
86. From at least February 1999 to October 2002, employees notified Defendants
concerning the state of the programs’ receivables base by sending them periodic
“exposure spreadsheets” or “exceptions summary reports.”
87. These spreadsheets or reports identified and discussed National Century
potential losses due to inadequate or improper collateral. The amounts were alarming
and grew quickly.
88. In October 2000, National Century employees identified more than
$644 million in “questionable” accounts receivable; by the summer of 2002, the exposure
spreadsheet showed a potential collateral shortfall of almost $970 million.
89. The shortfalls were further documented in an August 2002 memorandum from
National Century's funding department to Defendant Speer to which were attached
“funding summary reports for our larger clients.” The attachments showed the following
outstanding balances of uncollateralized advances owed to the programs as of July 2002
by entities wholly or partly owned by National Century or Defendants Poulsen, Parrett,
and Ayers :
• $614 million from Homecare Concepts of America;
• $486 million from Doctor’s Community Health Care Corp.;
• $136 million from Millennium Health Group, Inc.; and
• $135 million from Med Diversified, Inc.
90. The memorandum also included attached summaries of uncollateralized
outstanding balances for other large National Century clients. In total, the memorandum
documented uncollateralized outstanding balances of nearly $2 billion.
22
91. Finally, in August 2002, Defendant Parrett wrote to Defendants Poulsen and
Ayers to discuss what she appeared to view as a $1.427 billion shortfall in the collateral
of the combined programs.
Fraudulent Reserve Account Transfers
92. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
by the program agreements, the programs would maintain three reserve accounts: (1) a
6.5% Seller Credit Reserve to cover defaulted or rejected receivables; (2) a 2% Offset
Reserve to cover shortfalls caused by Medicare or Medicaid offsets; and (3) an 8.5%
general Equity account to provide further credit enhancement. National Century referred
to these accounts collectively as the “reserve accounts.”
93. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, as required
by the program agreements, National Century would document the status of the reserve
accounts once each month on a specified “determination date.” Under the programs’
master indentures, a shortfall in the Equity account was considered an event of default,
which, if uncured, would lead to the forced liquidation of the programs.
94. In offering materials, Defendant Poulsen and National Century, aided and
abetted by Defendants Parrett, Ayers, and Speer, represented to investors that, under the
program agreements, NPF VI and NPF XII could use reserve account funds only for
certain specified, limited purposes. For example, under certain circumstances, the
program agreements allowed for the funds in the Seller Credit Reserve account to be used
23
to replace defaulted or rejected receivables, but those funds were to be immediately
replenished from the health-care providers’ ongoing funding.
95. During the relevant period, Defendants, directly and through others,
maintained the program reserve accounts at levels that were materially short of their
required levels, as demonstrated by many internal National Century documents and
account statements.
96. In February 1999, National Century's Director of Compliance wrote to
Defendant Parrett that the status of the reserve accounts was “dismal” due to the
continued “pillage of reserves for funding.”
97. In January 2000, an employee wrote to Defendants that the reserve accounts
across the National Century programs, including NPF VI and NPF XII, were short by
over $40 million.
98. By May 2000, National Century's Compliance Department expected the
combined program reserve accounts to be more than $113 million short at the close of
business June 1, prompting a memorandum from a subordinate employee to National
Century's Director of Compliance that “WE ARE OUT OF MONEY.”
99. As of July 6, 2000, National Century's Director of compliance informed
Defendants Poulsen, Parrett, and Ayers that the NPF VI reserve accounts were more than
$94 million short of their required levels, and across all National Century note programs,
the total shortage had increased to approximately $160 million.
100. By February 2001, the NPF XII reserve accounts alone were short by over
$160 million, and by March of 2001, the NPF VI reserve accounts were short by over
$112 million.
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101. In June 2001, National Century’s controller wrote to Defendant Poulsen that
“there isn’t anything I know of that I can show [a rating agency] to show even attempted
compliance [with the NPF XII program reserve requirements for June 2001] because the
cash balances [in the reserve accounts] were never high enough to meet the requirement.”
102. The reserve shortfalls continued and deepened until the collapse of National
Century and its programs in the fall of 2002.
103. The reserve account shortfalls required Defendants, directly and through
others, to take a succession of progressively more drastic measures to mask the shortfalls,
including using funds from new securitizations to cover the reserve shortfalls, as outlined
above.
104. In February 1999 National Century's Director of Compliance wrote to
Defendants Poulsen, Parrett, and Ayers that “NPF VI is $45,000,000 SHORT in reserves”
because of particular advances and funding to providers from reserves and asked for
direction in continuing the fraud. (Emphasis in original.)
We are unable to move monies between books to ‘fix’ this problem.
NPF VI Series 1999-1 is not scheduled to close until month end March
1999. Another reason for the shortage is due to the lack of collections …
even though we continue proforma funding on a weekly basis.
Please advise – how can we have an investor report (the one we will have
to distribute right before the next series) with $45,000,000 shortage in
reserves ? …
We are creative with month end and the investor reports – but this is
beyond our capability to create. This is a crisis – we need help!
105. When the reserve shortfalls worsened in late 1999, Defendants Poulsen and
Speer directed National Century employees to routinely make fraudulent transfers of
funds between the programs’ reserve accounts at the beginning and end of the month.
25
106. Defendants Poulsen and Speer directed the transfers specifically to allow
employees to double-count and misreport in investor reports the dwindling reserve
balances by shuttling reserve funds between the programs at month’s end.
107. National Century employees consistently implemented and documented this
deception from at least January 2000. For example, one employee wrote to all
Defendants:
As of January 26, 2000, the NPF Funding Programs are deficient of cash reserves
by over $40 million. In order to pass the collateral, reserve and equity tests in
each Funding Program, the testing will be held on two separate days for
Monthend January 2000. For NPF VI and NPF XI, the accounts will be tested on
January 31, 2000. Then, on February 1, 2000, the accounts will be tested for NPF
XII, NPF WL, and NPF LP. This will allow [National Century] to shift the
necessary cash between Funding Programs. Therefore, is it [sic] important to stop
advancing cash until February 2, 2000.
108. In February 2000, the same employee wrote to all Defendants:
[T]he programs are losing about $11.0 million a week, [and] the programs will be
short by $85 to 90 million by the end of February [2000].
In recent months, [National Century] has cured the shortages by wiring funds
[between programs] and testing the requirements on different days. Previously,
the maximum amount needed to cure the shortages has not exceeded $45 million;
this month will require more than double that amount. It concerns me that the
Trustees may question these large wires.
109. But even these reserve account transfers were insufficient to mask the
programs’ reserve shortfalls in at least one instance.
110. In September 2000, the program reserve shortfalls were so severe that
National Century could not mask them solely by shuttling funds between programs. So
on September 30, National Century obtained a one-week, $15 million bank loan and then
combined those loan proceeds with reserve account transfers to cover most of
September’s reserve account shortfalls.
26
111. National Century covered the remaining shortfalls with short-term personal
loans made to National Century by Defendant Poulsen ($1.5 million), Poulsen’s wife
($1.5 million) and Defendant Ayers ($1 million).
112. One week later, National Century repaid the $15 million bank loan, plus a
$1 million banking fee. National Century also repaid Defendant Poulsen, his wife, and
Defendant Ayers, who earned, respectively, $39,843.75, $39,843.75, and $26,562.50 in
interest and fees from the short-term loans.
113. Approximately three weeks later, in mid-October 2000, NPF XII issued a new
series of $275 million in “AAA”-rated notes. In the offering materials for this issuance,
Defendant Poulsen and National Century, aided and abetted by Defendants Parrett,
Ayers, and Speer, falsely represented that NPF XIII reserve accounts were tested
monthly. The offering materials did not disclose to investors or to the rating agencies
that the Defendants used a seven-day loan to avoid a default on NPF VI and NPF XII’s
determination dates for September 2000.
114. By November 2000, the reserve shortfalls consistently reached and exceeded
$100 million per month, and the reserve transfers between the programs became routine.
In fact, for the entire year 2001, National Century’s inter-company transfers totaled more
than $3.5 billion.
115. After November 2000, the shortfalls were so common and so large that
National Century employees created “Month End Transfers” memoranda that
documented the shortfalls and detailed the account transfers that would be needed to
mask them.
27
116. Employees attached fictitious accounts receivable information to the transfer
requests to give the appearance that the programs were purchasing receivables from each
other, but no actual transfers of receivables between the programs occurred.
117. During many months of the relevant period, Defendants, directly and through
others, shifted $100 million or more between NPF VI and NPF XII
118. The transfers made in 2001 by Defendants, directly and through others, are
shown in the following table:
2001 Inter-Entity Transfers
Date Amount Transferring Entity Receiving Entity
1/2/01 $96,298,300.64 NPF VI NPF XII
1/30/01 $59,886,747.71 NPF XII NPF VI
1/31/01 $49,108,510.94 NPF XII NPF VI
2/1/01 $123,170,109.08 NPF VI NPF XII
2/2/01 $38,106,534.31 NPF XII NPF VI
2/27/01 $50,104,523.65 NPF XII NPF VI
2/28/01 $67,197,232.08 NPF XII NPF VI
3/1/01 $133,817,653.24 NPF VI NPF XII
3/1/01 $3,300,000.00 NPF XII NPF VI
3/2/01 $47,556,209.64 NPF XII NPF VI
4/2/01 $138,304,516.81 NPF VI NPF XII
4/3/01 $65,109,834.54 NPF XII NPF VI
4/30/01 $96,872,623.41 NPF XII NPF VI
5/1/01 $138,369,405.63 NPF VI NPF XII
5/2/01 $107,109,642.10 NPF XII NPF VI
5/31/01 $46,109,522.34 NPF XII NPF VI
6/1/01 $139,657,350,70 NPF VI NPF XII
6/4/01 $109,804,551.30 NPF XII NPF VI
6/29/01 $172,516,844.40 NPF VI NPF XII
7/2/01 $185,821,601.80 NPF XII NPF VI
7/31/01 $61,204,588.37 NPF XII NPF VI
8/1/01 $142,110,961.11 NPF VI NPF XII
8/2/01 $118,605,882.30 NPF XII NPF VI
8/31/01 $30,528,829.64 NPF XII NPF VI
9/4/01 $136,002,114.72 NPF VI NPF XII
9/5/01 $7,500,000.00 NPF XII NPF VI
28
9/6/01 $103,502,377.80 NPF XII NPF VI
10/1/01 $111,617,012.00 NPF VI NPF XII
10/2/01 $110,600,000.00 NPF XII NPF VI
11/1/01 $152,052,003.00 NPF VI NPF XII
11/2/01 $139,876,544.02 NPF XII NPF VI
11/30/01 $17,812,004.50 NPF XII NPF VI
12/3/01 $121,499,220.02 NPF VI NPF XII
12/4/01 $103,687,215.52 NPF XII NPF VI
12/31/01 $115,075,036.00 NPF XII NPF VI
119. Similar transfers continued until the NPF VI investors discovered them in the
fall of 2002, at which time the programs’ combined reserve shortfall exceeded
$350 million.
False Investor Reports
120. The program agreements required that a National Century subsidiary prepare
an investor report for each program once each month. The investor reports detailed the
financial status of the programs and indicated whether the programs were in compliance
with certain critical requirements of the program agreements.
121. During the relevant period, National Century employees produced two
versions of each monthly investor report: one containing actual data (often labeled
“actual”) and one containing false data (often labeled “reported”). Employees would first
produce a draft report based upon actual data in National Century’s systems. Then they
falsified that data to create a final, published report that complied with program
requirements.
122. As Defendants knew, the false investor reports consistently and materially
misrepresented the programs’ reserve account balances and the existence, age, and
composition of the programs’ purchased receivables.
29
123. The final reports containing falsified data were sent by National Century
employees to trustees, rating agencies, and investors through fax, mail, or electronic
transfer.
124. Defendants knew that the investor reports were false and misleading.
Defendants also knew that the investor reports were disseminated to trustees, rating
agencies, and investors.
125. National Century’s employees maintained file copies of both the actual and
reported versions of the investor reports and advised Defendants that the investor reports
were being falsified.
126. For example, a June 1999 “Summary of Adjustments to Investor Report” for
NPF XII sent to Defendants Poulsen, Parrett, and Ayers noted that total receivables
reported to investors were overstated by approximately $50 million; that receivables
more than 210 days in age were understated by approximately $41 million; and that
“26.5% of Total Actual Receivables are classified as Unidentified or Ineligible.”
127. A September1999 memorandum from a National Century employee to
Defendant Parrett further noted how the July 1999 investor report had been altered:
I have attached two versions of the July NPF VI Investor Report, "Actual" and
"Reported.” All discrepancies within Section One through Section Four of the
two reports have been highlighted.
The following is a brief synopsis of the changes that were made to the "Reported"
NPF VI investor Report for the month of July.
Section One – Activity
Amounts were changed to comply with previously reported figures and to insure
compliance in the current month.
Section Two - Receivables
To show even distribution and to offset the ineligible and defaulted receivables,
financial class and bucket disbursements were reallocated.
30
Section Four - Concentration Limits
Payors and/or amounts were changed to insure compliance of the reporting
trends and specified concentration limits.
128. On at least on occasion in 1999, Defendant Poulsen directed subordinates to
stop producing such comparison reports in order to limit documentation of the fraud.
129. On at least one occasion in 1999, Defendant Parrett also directed subordinates
to stop producing such comparison reports in order to limit documentation of the fraud.
False or Ineligible Receivables
130. Defendants, directly and through others, used various internal accounting
methods to disguise shortfalls in the programs’ collateral base from trustees, rating
agencies, and investors.
131. Defendant Poulsen directed employees to establish a special “class 915”
internal accounting classification in its receivables database to track unsecured advances.
132. Defendant Poulsen directed that such advances be “booked in the servicer
collateral base for consistency” and that it be a “frozen class and not age. Each month it
would need to be re-aged by the administrative group.”
133. Pursuant to Defendant Poulsen’s directive, the class 915 value was loaded into
National Century's receivables database and reported to investors in investor reports and
offering materials as if it represented actual, eligible receivables; but in fact it did not.
134. Instead, the figure was merely an accounting “plug” – the number needed to
close the gap between the total receivables loaded in the receivables databases and the
funding already provided to health-care providers.
135. Each month, employees merely calculated the class 915 plug figure needed for
that month, unloaded the previous month’s plug figure, and then replaced it with the new
31
month’s figure. The new figure was then falsely reported in investor reports and offering
documents as representing actual, eligible receivables.
136. By August 2002, the 915 figure loaded into National Century's receivables
database for NPF VI and NPF XII stood at more than $1.2 billion.
137. At Defendant Parrett’s direction and with the knowledge of Defendants
Poulsen, Ayers, and Speer, National Century created a second accounting classification
referred to as “location 99” into which employees loaded large amounts of ineligible
collateral such as receivables greater than 180 days in age, rejected receivables, legal
judgments, real estate liens, unsecured notes, and even artwork.
138. In many cases the programs held a legitimate security interest in this ineligible
collateral. But along with the class 915 plug figure, this location 99 collateral was then,
at Defendant Poulsen’s direction, falsely reported in investor reports and offering
documents as eligible receivables.
139. To further distort National Century's databases, Defendants, directly and
through others, consistently “re-aged” or “froze” the age of receivables in its databases
and then reporting those receivables as eligible. By “re-aging,” or reducing the reported
age of receivables more than 180 days old, National Century inflated its reported pool of
eligible receivables. By “freezing” receivables, or not allowing them to age beyond 180
days, National Century further inflated its reported pool of eligible receivables.
140. Throughout the relevant period, Defendants, directly and through others, used
these practices to conceal from trustees, rating agencies, and investors the large shortfalls
in the programs’ collateral base.
32
Misleading Financial Statements
141. The program agreements required National Century to engage independent
auditors to conduct consolidated audits of the financial statements of National Century
and its programs.
142. These yearly audits supported the steady stream of private securitizations
offered by the programs from 1991 to 2002.
143. National Century provided its audited financial statements and the agreedupon
procedures reports to trustees, investors, and rating agencies. During the relevant
period, rating agencies utilized the audited consolidated financial statements of National
Century in rating notes offered and sold by NPF VI and NPF XII.
144. Defendants Poulsen and Speer, directly and through others, provided
misleading cash and receivables information to the independent auditors in connection
with annual audits of National Century's consolidated financial statements.
145. Defendants Poulsen and Speer signed false and misleading management
representation letters in connection with annual audits of National Century's consolidated
financial statements.
Misleading Agreed-Upon Procedures Reports
146. The program agreements also required certain two-part “agreed-upon
procedures,” which included a periodic review of a small number of receivables and of
one monthly investor report each year. National Century engaged independent auditors
to perform the agreed-upon procedures and provided the resulting reports to trustees,
investors, and rating agencies.
33
147. National Century employees routinely doctored the audit detail supporting any
investor report chosen by the independent auditors for random review.
148. National Century’s Director of Compliance outlined how this was done in a
memorandum to Parrett dated February 11, 1999:
I know that the random audit is a necessary requirement for the
securitization(s); however, due to our business practices, it takes
several weeks of preparation before the audit can be scheduled. The
preparation time is not due to gathering copies of reports, obtaining
file copies, etc., the delay is due to the necessity of CREATING the
backup that matches the investor report.
It has been necessary to modify/edit/change the original receivables
data from the AS400 for investor reporting. Due to advances with no
collateral and high volumes of defaulted, the amount of eligible
receivables aged 0-180 days varies significantly from the
Outstanding Purchase amount (the amount actually funded to our
clients). This means that we are UNDERcollateralized in all
portfolios and the investor report numbers are adjusted in order to
meet the default triggers.
Therefore, whenever the investor reports are audited we have to
create special reports that reflect the numbers reported which again
differ significantly from the receivables activity actually posted and
housed within the AS400 system (emphasis in original).
149. The Director of Compliance then listed the reports that were created or
“adjusted” to support the false investor reports, and closed by saying all concentrationlimit
numbers in the programs’ investor reports were “arbitrary with the total receivables
reported having no detail to support the information shown in the investor report.”
National Century employees falsified audit detail for all investor reports provided to
auditors for review under the programs’ agreed-upon procedures from 1999 to 2002.
34
Defendant Poulsen’s Participation in the Scheme to Defraud
150. As Chairman and Chief Executive Officer of National Century, Defendant
Poulsen exercised control over, and was actively involved in the day-to-day operations
of, National Century and its subsidiaries.
151. On numerous occasions throughout the relevant period, National Century
employees warned Defendant Poulsen, orally, by e-mail, and through memoranda:
(1) that reserve account balances had fallen below required levels; (2) that the value of
the eligible receivables held by National Century was below required levels; (3) that
National Century was in violation of concentration and aging requirements of the
program agreements; (4) that the investor reports disseminated to trustees, rating
agencies, and investors contained false information; (5) that National Century employees
were loading false information into National Century’s receivable-tracking database; and
(6) that his subordinates were providing false and misleading information to auditors.
152. Throughout the relevant period, Defendant Poulsen signed all the investor
reports issued by NPF VI and NPF XII. Defendant Poulsen knew that those reports were
false and misleading because he had personally directed subordinates to falsify them. He
also knew that the false and misleading investor reports were disseminated to trustees,
rating agencies, and investors.
153. During the relevant period, Defendant Poulsen personally authorized hundreds
of fraudulent, uncollateralized advances totaling as much as $168 million. Defendant
Poulsen made advances to health-care providers in which he and other Defendants held
financial interests.
35
154. During the relevant period, Defendant Poulsen supervised the drafting of false
and misleading offering materials for all the note issuances of NPF VI and NPF XII.
Defendant Poulsen also signed those documents and accompanying certificates in which
he represented that the issuing subsidiary was in compliance with the applicable program
agreements. Defendant Poulsen took these actions despite his knowledge that the
offering materials and certificates were false and misleading. As Defendant Poulsen also
knew, the offering documents and certificates were disseminated to trustees, rating
agencies, and investors.
155. During the relevant period, Defendant Poulsen made repeated
misrepresentations and misleading omissions concerning NPF VI and NPF XII’s
finances, use of offering proceeds, and compliance with program agreements in dozens of
road shows, due diligence meetings, and other meetings with representatives of rating
agencies, investors, and potential investors.
156. During the relevant period, Defendant Poulsen directed National Century
employees to transfer funds between the reserve accounts of NPF VI and NPF XII for the
purpose of masking reserve account shortfalls.
157. On several occasions during the relevant period, Defendant Poulsen
authorized National Century employees to divert offering proceeds from one issuing
subsidiary to another subsidiary.
158. During the relevant period, Defendant Poulsen allowed National Century
employees to disguise collateral shortfalls by recording ineligible or fictitious collateral
into its databases.
36
159. During the relevant period, Defendant Poulsen knowingly signed false and
misleading management representation letters in connection with audits of National
Century’s consolidated financial statements. Defendant Poulsen knew the false
management representation letters were disseminated to trustees, rating agencies, and to
some investors.
160. During the relevant period, Defendant Poulsen directed subordinates to
provide false and misleading information to auditors.
161. During the relevant period, Defendant Poulsen made a personal loan,
undisclosed to trustees, rating agencies, and investors, for the purpose of concealing
reserve account shortfalls.
Defendant Parrett’s Participation in the Scheme to Defraud
162. As Director of the Accounts Receivable Servicer Department of National
Century from 1991 through December 2000 and member of the board of directors from
1991 through November 2002, Defendant Parrett participated in the operations of
National Century and its subsidiaries.
163. On numerous occasions throughout the relevant period, National Century
employees warned Defendant Parrett, orally, by e-mail, and through memoranda, that:
(1) reserve account balances had fallen below required levels; (2) the value of the eligible
receivables held by National Century was below required levels; (3) the receivables held
by National Century violated the concentration and aging requirements of the program
agreements; and (4) the investor reports disseminated to trustees, rating agencies, and
investors contained false information. Defendant Parrett was also fully aware that her
subordinates at National Century: (1) were loading false information into National
37
Century’s receivable-tracking databases; (2) used reserve account funds to purchase new
receivables and to advance funds to providers in violation of the program agreements;
(3) reported reserve account balances on different days of the month and transferred the
same funds to different accounts on different days in order to deceive the trustees, ratings
agencies and investors; and (4) improperly diverted funds generated from new note
offerings in NPF VI and NPF XII to other reserve accounts to hide the reserve account
shortfalls.
164. Throughout the relevant period, as Director of the Accounts Receivable
Servicer Department of National Century, Defendant Parrett supervised the valuation and
collection of National Century’s program receivables. In this capacity, Defendant Parrett
directed and allowed subordinates to load ineligible and fictitious collateral into National
Century’s receivables databases and to backdate the age of older, stale receivables.
Defendant Parrett knew that the resulting false data would be disseminated to trustees,
ratings agencies and investors.
165. During 1999, Defendant Parrett supervised the creation and distribution of
false investor reports issued by NPF VI and NPF XII. Defendant Parrett knew those
reports were false and misleading because she had personally directed subordinates to
falsify them and supervised the creation of the false audit detail to support the false
investor reports. Defendant Parrett similarly understood the false and misleading
investor reports were disseminated to trustees, rating agencies, and investors.
166. During the relevant period, Defendant Parrett personally authorized
fraudulent, uncollateralized advances totaling as much as $145 million. Defendant
38
Parrett made to healthcare providers in which she and other Defendants held financial
interests.
167. During the relevant period, Defendant Parrett signed and authorized the
issuance of notes in spite of her knowledge that the offering materials were false and
misleading.
Defendant Ayers’ Participation in the Scheme to Defraud
168. As Vice-Chairman and Chief Operating Officer of National Century,
Defendant Ayers exercised control over, and was actively involved in, the day-to-day
operations of National Century and its subsidiaries.
169. On numerous occasions throughout the relevant period, National Century
employees warned Defendant Ayers, orally, by e-mail, and through memoranda, that:
(1) reserve account balances had fallen below required levels; (2) the value of the eligible
receivables held by National Century was below required levels; (3) the receivables held
by National Century violated the concentration and aging requirements of the program
agreements; and (4) the investor reports disseminated to trustees, rating agencies, and
investors contained false information. Defendant Ayers was also fully aware that
National Century employees: (1) were loading false information into National Century’s
receivable-tracking databases; (2) used reserve account funds to purchase new
receivables and to advance funds to providers in violation of the program agreements;
and (3) improperly diverted funds generated from new note offerings in NPF VI and
NPF XII to other reserve accounts to hide the reserve account shortfalls.
170. During the relevant period, Defendant Ayers personally authorized fraudulent,
uncollateralized advances totaling as much as $69 million. Defendant Ayers made
39
advances to health-care providers in which he and other Defendants held financial
interests.
171. During the relevant period, Defendant Ayers made a personal loan,
undisclosed to trustees, rating agencies, and investors, for the purpose of concealing
reserve account shortfalls.
172. During the relevant period, Defendant Ayers signed and authorized the
issuance of notes in spite of his knowledge that the offering materials were false and
misleading.
173. During the relevant period, Defendant Ayers allowed National Century to
mask reserve account shortfalls by transferring funds between reserve accounts and by
misappropriating funds from a new note issuance.
Defendant Speer’s Participation in the Scheme to Defraud
174. As the Chief Financial Officer of National Century, Defendant Speer actively
participated in National Century’s operations and was central to National Century’s
scheme to defraud investors.
175. On numerous occasions throughout the relevant period, National Century
employees warned Defendant Speer, orally, by e-mail, and through memoranda:
(1) reserve account balances had fallen below required levels; (2) the value of the eligible
receivables held by National Century was below required levels; (3) the receivables held
by National Century violated the concentration and aging requirements of the program
agreements; and (4) the investor reports disseminated to trustees, rating agencies, and
investors contained false information. Defendant Speer was also fully aware that
National Century employees: (1) were loading false information into National Century’s
40
receivable-tracking databases; (2) used reserve accounts funds to purchase new
receivables and to advance funds to providers in violation of the program agreements;
(3) reported reserve account balances on different days of the month and transferred the
same funds to different accounts on different days in order to deceive the trustees, ratings
agencies and investors; and (4) improperly diverted funds generated from new note
offerings in NPF VI and NPF XII to other reserve accounts to hide the reserve account
shortfalls.
176. During the relevant period, Defendant Speer knowingly signed false and
misleading management representation letters in connection with audits of National
Century’s consolidated financial statements.
177. During the relevant period, Defendant Speer directed subordinates to provide
false and misleading information to auditors.
178. During the relevant period, Defendant Speer directed National Century
employees to transfer funds between the reserve accounts of NPF VI and NPF XII for the
purpose of masking reserve account shortfalls.
179. Defendant Speer authorized changing the determination dates for NPF VI and
NPF XII to enable National Century to fraudulently double-count and misreport the
programs’ reserve-account balances to trustees, investors and ratings agencies.
180. Defendant Speer further approved the use of investor funds to cover existing
reserve shortfalls, in violation of the permitted uses of investor funds detailed in the
programs’ agreements.
181. During the relevant period, Defendant Speer personally authorized as much as
$700 million in fraudulent, uncollateralized advances, including to health-care providers
41
in which the other Defendants held and interest and to a National Century client where
Speer had served as President and CEO prior to joining National Century.
182. On several occasions during the relevant period, Defendant Speer authorized
National Century employees to divert offering proceeds from one issuing subsidiary to
another subsidiary.
Investor Harm
183. Defendants’ scheme to defraud resulted in $2.6 billion in investor losses.
184. Defrauded investors included institutional asset managers; state and local
government entities; charitable foundations; and the pension funds of teachers, police
officers, fire fighters and other public employees.
185. The collapse of Defendants’ scheme to defraud further resulted in the
bankruptcy filings of approximately 275 health-care providers.
COUNT I
Violations of Section 17(a)(1) of the Securities Act
[15 U.S.C. §77q(a)(1)]
(As Against All Defendants)
186. The Commission repeats, incorporates by reference and realleges paragraphs
1 through 185 of its Complaint.
187. Since a date unknown but since at least 1999 through 2002, Defendants
Poulsen, Parrett, Ayers and Speer, directly and indirectly, by use of the means or
instruments of transportation or communication in interstate commerce and by the use of
the mails, in the offer or sale of securities, did knowingly or recklessly employ devices,
schemes, or artifices to defraud.
42
188. Defendants Poulsen, Parrett, Ayers, and Speer acted with scienter when they
engaged in the conduct alleged in paragraphs 186 through 187 above.
189. By reason of the foregoing, Defendants Poulsen, Parrett, Ayers and Speer, did
directly and indirectly violated Section 17(a)(1) of the Securities Act [15 U.S.C.
§77q(a)(1)].
COUNT II
Violations of Section 17(a)(2) of the Securities Act
[15 U.S.C. §77q(a)(2)]
(As Against Defendant Poulsen)
190. The Commission repeats, incorporates by reference and realleges paragraphs
1 through 185 of its Complaint.
191. Since a date unknown but since at least 1999 through 2002, Defendant
Poulsen, directly and indirectly, by use of the means or instruments of transportation or
communication in interstate commerce and by the use of the mails, in the offer or sale of
securities has obtained money or property by means of untrue statements of material facts
and omissions to state material facts necessary in order to make the statements made, in
the light of the circumstances under which they were made, not misleading.
192. By reason of the activities alleged in paragraphs 190 through 191 above,
Defendant Poulsen violated Section 17(a)(2) of the Securities Act [15 U.S.C. §77q(a)(2)].
COUNT III
Violations of Section 17(a)(3) of the Securities Act
[15 U.S.C. §77q(a)(3)]
(As Against All Defendants)
193. The Commission repeats, incorporates by reference and realleges paragraphs
1 through 185 of its Complaint.
43
194. Since a date unknown but since at least 1999 through 2002, Defendants
Poulsen, Parrett, Ayers and Speer, directly and indirectly, by use of the means or
instruments of transportation or communication in interstate commerce and by the use of
the mails, in the offer or sale of securities, have engaged in transactions, practices or
courses of business which would have and did operate as a fraud or deceit upon
purchasers and prospective purchasers of such securities.
195. By reason of the activities alleged in paragraphs 193 through 194 above,
Defendants Poulsen, Parrett, Ayers and Speer violated Section 17(a)(3) of the Securities
Act [15 U.S.C. §77q(a)(3)].
COUNT IV
Violations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)]
and Rule 10b-5 Thereunder [17 C.F.R. § 240.10b-5]
(As Against Defendant Poulsen)
196. The Commission repeats, incorporates by reference and realleges paragraphs
1 through 185 of its Complaint.
197. Since a date unknown but since at least 1999 through 2002, Defendant
Poulsen, directly and indirectly, by use of the means and instrumentality of interstate
commerce, and by the use of the mails, in connection with the purchase or sale of the
securities, has knowingly or recklessly: (a) employed devices, schemes, or artifices to
defraud, (b) made untrue statements of material facts and omitted to state material facts
necessary in order to make the statements made, in the light of the circumstances under
which they were made, not misleading, and/or (c) engaged in acts, practices or courses of
business which would and did operate as a fraud and deceit upon the purchasers and
sellers of such securities.
44
198. Defendant Poulsen acted with scienter when he engaged in the conduct
alleged in paragraphs 196 through 197 above.
199. By reason of the activities alleged in paragraphs 196 through 198 above,
Defendant Poulsen violated Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and
Rule 10b-5 promulgated thereunder [17 C.F.R. §240.10b-5].
COUNT V
Violations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and
Rule 10b-5 (a) and (c) Thereunder [17 C.F.R. § 240.10b-5(a) and (c)]
(As Against Defendants Parrett, Ayers, and Speer)
200. The Commission repeats, incorporates by reference and realleges paragraphs
1 through 185 of its Complaint.
201. Since a date unknown but since at least 1999 through 2002, Defendants
Parrett, Ayers and Speer, directly and indirectly, by use of the means and instrumentality
of interstate commerce, and by the use of the mails, in connection with the purchase or
sale of the securities, have knowingly or recklessly employed devices, schemes, or
artifices to defraud, and engaged in acts, practices or courses of business which would
and did operate as a fraud and deceit upon the purchasers and sellers of such securities.
202. Defendants Parrett, Ayers, and Speer acted with scienter when they engaged
in the conduct alleged in paragraphs 200 through 201 above.
203. By reason of the activities alleged in paragraphs 200 through 202 above,
Defendants Parrett, Ayers and Speer violated Section 10(b) of the Exchange Act [15
U.S.C. §78j(b)] and Rule 10b-5(a) and (c) promulgated thereunder [17 C.F.R. §240.10b-
5(a) and (c)].
45
COUNT VI
Aiding and Abetting Violations of Section 10(b) of the Exchange Act [15 U.S.C.
§78j(b)] and Rule 10b-5 Thereunder [17 C.F.R. § 240.10b-5]
(As Against All Defendants)
204. The Commission repeats, incorporates by reference and realleges paragraphs
1 through 203 of its Complaint.
205. As set forth more fully above in paragraphs 186 through 203, National
Century and Defendants Poulsen, Parrett, Ayers, and Speer violated Section 10(b) of the
Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].
206. By their conduct described in paragraphs 1 through 185, Defendants Poulsen,
Parrett, Ayers, and Speer each knowingly and substantially assisted violations of
Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder
[17 C.F.R. §240.10b-5], and thereby aided and abetted violations by the other Defendants
and National Century of those provisions of the federal securities laws.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
Issue findings of fact and conclusions of law that Defendants committed the
violations charged and alleged herein.
Issue Permanent Injunctions restraining the Defendants, their officers, agents,
servants, employees, attorneys, and all person in active concert or participation with
them, and each of them, from violating and from aiding and abetting violations of: (a)
Sections 17(a)(1), (2) and (3) of the Securities Act [15 U.S.C. §§77q(a)(1), (2) and (3)];
(b) Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)]; and (c) Rule 10b-5
promulgated thereunder [17 C.F.R. §240.10b-5].
46
Order Defendants to pay into the registry of this Court disgorgement of their illgotten
gains from their illegal conduct, gained directly or indirectly from the conduct
complained of herein, together with prejudgment interest thereon.
Order Defendants to pay to the Commission civil penalties pursuant to Section
20(d) of the Securities Act [15 U.S.C. §77t(d)] and Section 21(d)(3) of the Exchange Act
[15 U.S.C. §78u(d)(3)].
Order that Defendants be barred from acting as officers or directors of any issuer
whose securities are registered pursuant to Section 12 of the Exchange Act [15 U.S.C.
§78l], pursuant to Section 20(e) of the Securities Act [15 U.S.C. §77t(e)] and Section
21(d)(2) of the Exchange Act [15 U.S.C. §78u(d)(2)] as a result of their violations of
Section 17(a) of the Securities Act [15 U.S.C. §77q(a)] and Section 10(b) of the
Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R.
§240.10b-5].
Retain jurisdiction of this action in accordance with the principles of equity and
the Federal Rules of Civil Procedure in order to implement and to carry out the terms of
all orders and decrees that may be entered or to entertain any suitable application or
motion for additional relief within the jurisdiction of the Court.
Grant an Order for such further relief as the Court may deem appropriate.
Respectfully Submitted,
John E. Birkenheier
Adolph J. Dean, Jr.
David M. Cole
Michael M. Cabonargi
47
Attorneys for Plaintiff
U. S. Securities and Exchange Commission
175 West Jackson Street, Suite 900
Chicago, Illinois 60604
(312) 353-7390 (phone)
(312) 353- 7398 (fax)
birkenheierj@sec.gov
deana@sec.gov
coled@sec.gov
cabonargimm@sec.gov
Local Counsel:
Mark T. D’Alessandro
Ohio Bar No. 0019877
Assistant United States Attorney
303 Marconi Blvd., 2nd Floor
Columbus, Ohio 43215
(614) 469-5715 (phone)
(614) 469-5653 (fax)
mark.dalessandro@usdoj.gov
Dated: December 21, 2005