Tuesday, May 23, 2006

Seven Former NCFE Executives Indicted in Alleged Billion Dollar Fraud

The U.S. Attorney's Office for the Southern District of Ohio announced the indictment of seven former senior executives at National Century Financial Enterprises (NCFE), at one time among the largest financing companies for health care providers.  When NCFE fell into bankruptcy in November 2002, it had securitized approximately $3 billion in health care receivables that it purchased and then repackaged for sale to investors on the secondary market.  Among the defendants are the former CEO, CFO, and COO (that's a lot of chiefs) of the company, along with the head of its securitization office.  The 60-count indictment (here) charges conspiracy, securities fraud, mail/wire fraud, money laundering, and money laundering conspiracy, along with forfeiture counts seeking $1.9 billion from the defendants.  Three other mid-level NCFE executives entered guilty pleas in 2003 and 2004.  According to the press release (here) issued by the USAO:

The Dublin, Ohio based company bought medical accounts receivable from health care providers around the country, then financed the purchases by selling securities in the form of notes to large institutional investors outside Ohio. In their promotional materials, NCFE billed themselves as the “nation’s leading supplier of working capital to the medical industry.” The company collapsed in November 2002.

According to the indictment, National Century operated as a financial service holding company. Through its subsidiary corporations, such as NPF VI and NPF XII, the company bought accounts receivable from hospitals, nursing homes and other health care providers and medical concerns. The subsidiaries would issue health care receivables securitization program notes. National Century employees would sell these securities in private placements, promoting them as conservative and safe investments.

According to the indictment, NCFE executives diverted the money into other companies they owned, used some of the money for operating expenses for NCFE, and provided unsecured advances and loans to clients, third parties and others.

The indictment alleges that the defendants conspired to conceal cash shortages from investors and trustees by using carefully timed transfers of funds back and forth between companies. In one such instance, on January 2, 2002, the defendants ordered $148 million moved into one of their subsidiaries so the investments would appear sound. The next day, they moved the $148 million back to create the same appearance for another subsidiary.

Since the bankruptcy, approximately $1.1 billion has been recovered, leaving investors and others with approximately $1.9 billion in losses.  If any of the defendants are convicted and the loss is determined to be anywhere close to that amount, then that person will be looking at a substantial term of imprisonment, in the range of the 25-year sentence given to former WorldCom CEO Bernie Ebbers. (ph)


Fraud, Prosecutions | Permalink

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