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U.S. Securities and Exchange Commission

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION


Securities and Exchange Commission,

Plaintiff,   

v.

BRIAN J. STUCKE,

Defendant.   


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CIVIL ACTION
FILE NO. C-2031161

JUDGE EDMUND A. SARGUS JR.

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 at least 1999 and continuing into 2002, senior officials of National Century Financial Enterprises, Inc. ("National Century") defrauded investors who invested billions of dollars in securities issued by wholly owned subsidiaries of National Century. The subsidiaries sold the securities for the stated purpose of purchasing and servicing medical accounts receivable through National Century.

2. Defendant Brian J. Stucke ("Stucke") actively participated in the fraud as alleged in this Complaint.

3. Beginning in at least 1999, senior National Century officials improperly "advanced" to health-care providers $1 billion or more of the capital raised from investors without receiving required medical accounts receivable in return. These advances were essentially unauthorized, unsecured loans to distressed or defunct health-care providers-many of which were partly or wholly owned by National Century or its principals. The unsecured advances were inconsistent with representations made by Stucke and senior National Century officials in offering documents and monthly reports provided to investors.

4. Stucke and senior National Century officials concealed the fraud from trustees, investors, potential investors, and auditors by, among other things, repeatedly transferring funds between the subsidiaries' bank accounts to mask shortfalls of as much as $400 million; recording $1 billion or more in non-existent or ineligible medical accounts receivable on the books of National Century's subsidiaries; creating and distributing false offering documents, monthly investor reports, and accounting records to trustees, investors, potential investors, and auditors; and misrepresenting the status of the programs' cash accounts and collateral base to trustees, investors, potential investors, and auditors.

5. 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 Defendant Stucke, ordering disgorgement of unlawful profits, imposing a civil penalty, prohibiting Defendant Stucke from acting as an officer or director of any reporting company, and for other relief.

6. Defendant Stucke, directly and indirectly, has 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

7. 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].

8. Defendant Stucke, directly and indirectly, has 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 connection with the transactions, acts, practices, and courses of business alleged herein, within the jurisdiction of the Southern District of Ohio and elsewhere.

THE DEFENDANT

9. Beginning in 1999 and continuing into 2002 (the "relevant period"), Defendant Stucke resided in London, Ohio and was employed by National Century, from September 1999 to July 2000, as its Director of Compliance and, from July 2000 through the present as its Associate Vice-President for Business Services.

RELEVANT ENTITIES

10. National Century is, and during the relevant period was, a privately held Ohio corporation headquartered in Dublin, Ohio.

11. During the relevant period, National Century organized and owned two subsidiaries, NPF VI, Inc. ("NPF VI") and NPF XII, Inc. ("NPF XII"). Both NPF VI and NPF XII are Ohio corporations, and both are wholly owned subsidiaries of National Century.

BACKGROUND

12. National Century, through NPF VI, NPF XII, and another wholly owned subsidiary, engaged in the business of purchasing and servicing medical accounts receivable from health-care providers.

13. From 1991 through August 2002, National Century utilized NPF VI, NPF XII, and other wholly owned subsidiaries to purchase medical accounts receivable and to issue and sell notes secured by those medical accounts receivable.

14. During the relevant period, senior National Century officials and Stucke (as Director of Compliance from September 1999 to July 2000), controlled and directed the activities of NPF VI and NPF XII.

15. NPF VI and NPF XII financed their purchases of medical accounts receivable by selling notes to large institutional investors in several states outside Ohio. The notes were secured by medical accounts receivable owned by NPF VI and NPF XII.

16. During the relevant period, NPF VI and NPF XII financed their purchases of medical accounts receivable by issuing notes totaling at least $3.25 billion in a series of at least sixteen private placements.

17. As of November 2002, approximately $3 billion of notes issued by NPF VI and NPF XII were outstanding and held by investors.

18. The terms of each private placement of notes sold by NPF VI and NPF XII were contained in a set of agreements, including master indenture agreements, supplemental indenture agreements, note purchase agreements, and sales and sub-servicing agreements ("the program agreements").

19. The program agreements prescribed that National Century, through a wholly owned subsidiary, disburse offering proceeds to health-care providers only in return for medical accounts receivable which satisfied certain standards set out in the program agreements ("eligible receivables").

20. The program agreements also required that, through wholly owned subsidiaries, National Century maintain certain prescribed amounts of purchased medical accounts receivable as collateral for the notes; that National Century remove any medical accounts receivable that aged beyond 180 days; and that National Century comply with strict concentration requirements in assembling the pools of medical accounts receivable that secured the notes.

21. In addition, the program agreements required that bank accounts ("reserve accounts") be opened and funded in order to provide for, among other things, defaulted medical accounts receivable and shortfalls caused by Medicare and Medicaid offsets. The program agreements required that NPF VI and NPF XII maintain in the reserve accounts amounts equal to 17% of the purchase prices paid for medical accounts receivable.

22. The program agreements also required, with minor exceptions, that the reserve accounts be fully funded.

23. Under the program agreements, moneys held in the reserve accounts could be used for only certain specified, limited purposes.

24. NPF VI and NPV XII were further required by the program agreements to have the reserve accounts tested by auditors once each month, for the benefit of the investors.

THE SCHEME TO DEFRAUD

25. During the relevant period, National Century personnel systematically defrauded the purchasers of notes issued by NPF VI and NPF XII.

26. First, several senior National Century officials created shortfalls in the reserve accounts and collateral base by advancing $1 billion or more in offering proceeds to certain health-care providers without receiving eligible medical accounts receivable in return. Many of these advances were to health-care providers wholly or partly owned by several senior officials of National Century.

27. Second, senior National Century officials and Stucke (as Director of Compliance from September 1999 to July 2000) took deliberate steps to conceal the reserve and collateral shortfalls from trustees, investors, potential investors, and auditors. Among other things, Stucke and others regularly transferred funds between the NPF VI and NPF XII reserve accounts in order to mask reserve-account shortfalls of as much as $400 million.

28. Third, National Century personnel overstated the collateral securing the notes by recording at least $1 billion in non-existent or ineligible medial accounts receivable as collateral, and then falsely reporting that collateral as eligible receivables to trustees, investors, potential investors, and auditors.

29. Fourth, Stucke (as Director of Compliance from September 1999 to July 2000) and others created false offering documents, false monthly investor reports, and false accounting records to conceal their misuse of offering proceeds. Stucke and other National Century personnel then provided the false documents to trustees, investors, potential investors, and auditors.

30. Finally, senior National Century officials misrepresented the status of the reserve accounts and collateral base in personal contacts with trustees, investors, potential investors, and auditors.

DEFENDANT STUCKE'S ROLE IN THE SCHEME TO DEFRAUD

Uncollateralized Advances

31. From January 1999 to July 2000, Stucke participated in uncollateralized advances of investor funds to health-care providers by preparing forms authorizing such advances for signature by other National Century officials.

Fraudulent Reserve-Account Transfers

32. During the relevant period, NPF VI and NPV XII were required by the program agreements to test and report the status of the program reserve accounts once each month. Initially, the reserve accounts of both NPF VI and NPF XII were tested and reported on the same day each month.

33. When the reserve account shortfalls worsened in late 1999 and early 2000, Stucke, with the knowledge and approval and at the direction of senior National Century officials, altered the testing dates so that the reserve accounts of NPF VI and NPF XII would be tested on different days each month.

34. By thus altering the testing dates it became easier for National Century to transfer large sums between the reserve accounts without detection and thereby create the false appearance that all the reserve accounts were fully funded.

35. As Director of Compliance, with the knowledge and approval and at the direction of senior National Century officials, Stucke directed subordinates to mask reserve-account shortfalls from trustees, investors, potential investors, and auditors by improperly transferring funds between the reserve accounts for NPF VI and NPF XII. Many of the transfers exceeded $100 million.

36. Stucke monitored the transfers and prepared memoranda for senior company officials reporting on the transfers and the status of reserve account shortfalls. Stucke further summarized to senior National Century officials the available options for concealing the reserve account shortfalls.

Misuse of Securitization Proceeds

37. In November 1999, National Century sold a new issue of securities to investors. Contrary to the representations contained in the offering documents, Stucke and senior National Century officials used the proceeds of the offering to cover a $101 million shortfall in the reserve accounts.

False Investor Reports

38. During a portion of the relevant period, as Director of Compliance, Stucke supervised the drafting of monthly investor reports required of NPF VI and NPF XII under the program agreements.

39. In several months during the relevant period, as Director of Compliance, Stucke knowingly directed subordinates to falsify the monthly investor reports.

40. The monthly investor reports falsely overstated reserve-account balances and collateral. The false information in the investor reports was material to investors and potential investors.

41. In several months during the relevant period, as Director of Compliance, Stucke transmitted or directed subordinates to transmit the false investor reports to program trustees and program investors.

42. Stucke knew that the false investor reports would be transmitted to potential investors in offerings conducted by NPF VI and NPF XII.

COUNT I
Violations of Section 17(a)(1) of the Securities Act
[15 U.S.C. § 77q(a)(1)]

43. Paragraphs 1 through 42 are realleged and incorporated by reference herein.

44. By the conduct alleged above, Defendant Stucke, in the offer or sale of securities, by the use of means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly, employed devices, schemes, or artifices to defraud.

45. Defendant Stucke acted with scienter when he engaged in the conduct alleged in paragraphs 43 through 44 above.

46. By reason of the activities alleged in paragraphs 43 through 45 above, Defendant Stucke violated Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)].

COUNT II
Violations of Sections 17(a)(2) and (3) of the Securities Act
[15 U.S.C. §§ 77q(a)(2) and (3)]

47. Paragraphs 1 through 42 are realleged and incorporated by reference herein.

48. By the conduct alleged above, Defendant Stucke, in the offer or sale of securities, by the use of means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly, 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 and engaged in transactions, practices or courses of business which would and did operate as a fraud or deceit upon purchasers and prospective purchasers of such securities.

49. By reason of the activities alleged in paragraphs 47 through 48 above, Defendant Stucke violated Sections 17(a)(2) and (3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and (3)].

COUNT III
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]

50. Paragraphs 1 through 42 are realleged and incorporated by reference herein.

51. By the conduct alleged above, Defendant Stucke, in connection with the purchase and sale of securities, by the use of the means and instrumentalities of interstate commerce or by the use of the mails, directly or indirectly, employed devices, schemes, and artifices to defraud, 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 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.

52. Defendant Stucke acted with scienter when he engaged in the conduct alleged in paragraphs 50 through 51 above.

53. By reason of the activities alleged in paragraphs 50 through 52 above, Defendant Stucke 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].

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

I.

Issue findings of fact and conclusions of law that Defendant Stucke committed the violations charged and alleged herein.

II.

Permanently enjoin Defendant Stucke from violating Sections 17(a)(1), (2) and (3) of the Securities Act [15 U.S.C. §§ 77q(a)(1), (2) and (3)].

III.

Permanently enjoin Defendant Stucke from violating 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].

IV.

Order Defendant Stucke to pay into the registry of this Court disgorgement of his ill-gotten gains from his illegal conduct, gained directly or indirectly from the conduct complained of herein, together with prejudgment interest thereon.

V.

Order Defendant Stucke to pay to the Commission a civil penalty 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)].

VI.

Order that Defendant Stucke be barred from acting as an officer or director 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 his violation 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].

VII.

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.

VIII.

Grant an Order for such further relief as the Court may deem appropriate.

Respectfully Submitted,

s/John E. Birkenheier
John E. Birkenheier
Paul A. Montoya
David M. Cole
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)

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)

Dated: December --, 2003

 

http://www.sec.gov/litigation/complaints/comp18501.htm


Modified: 12/11/2003