Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, January 12, 2010

SEC Obtains Fraud Judgments Against Former CEO of National Century Financial Enterprises

The SEC announced that the federal district court in southern Ohio entered final judgments against Lance Poulsen, the former Chairman and Chief Executive Officer of National Century Financial Enterprises, Inc. (NCFE); Donald Ayers, NCFE's former Chief Operating Officer and a former member of its board of directors; Randolph Speer, NCFE's former Chief Financial Officer; and Rebecca Parrett, NCFE's former Director of Accounts Receivable and also a member of the board of directors, resolving the Commission's charges that they orchestrated a fraud on institutional investors in securities issued by subsidiaries of NCFE.

The complaint, initially filed in 2005, alleged that Poulsen, Ayers, Parrett and Speer participated in a scheme to defraud investors in securities issued by subsidiaries of NCFE. The complaint alleges NCFE subsidiaries, known as "programs," purchased medical accounts receivable from healthcare providers and issued notes that securitized those receivables. From at least February 1999 through October 2002, the programs raised at least $3.25 billion from the offer and sale of notes through private placements that were exempt from registration. Under the pertinent agreements, the programs were required to maintain specified reserve account balances and certain balances of medical accounts receivable as collateral to secure the notes. NCFE directors and officers depleted the programs' reserve accounts and collateral base by advancing at least $1.2 billion from the programs' funds to healthcare providers without receiving eligible receivables in return. These advances were essentially unsecured loans by the programs to distressed or defunct healthcare providers-many of which were wholly or partly owned by NCFE or its principals. The complaint further alleges NCFE officials misrepresented the status of the programs' reserve accounts and collateral base to investors and concealed the reserve account and collateral shortfalls by creating or allowing the creation of false offering documents, monthly investor reports, and accounting records. When investors discovered the reserve account transfers and collateral shortfalls in late 2002, NCFE and the programs stopped providing funding to healthcare providers and filed for Chapter 11 bankruptcy protection. As a result, approximately 275 healthcare providers were also forced to file for bankruptcy protection. NCFE and its programs have subsequently been liquidated.

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