United States Securities and Exchange Commission
Litigation Release No. 19509 / December 21, 2005
Securities and Exchange Commission v. Lance Poulsen, Rebecca Parrett, Donald Ayers and Randolph Speer, Civil Action No. 2:05CV1142 (S.D. Ohio) (December 21, 2005)
SEC Sues NCFE Executives for Role in $2.6 Billion Fraud
The Securities and Exchange Commission today filed a civil injunctive action in the United States District Court for the Southern District of Ohio, alleging that Lance Poulsen, principal and former Chief Executive Officer of National Century Financial Enterprises, Inc. (NCFE), Donald S. Ayers, principal and former Chief Operating Officer of NCFE, Rebecca S. Parrett, principal and former Director of NCFE's Accounts Receivable Servicer Department, and Randolph H. Speer, former Chief Financial Officer of NCFE, participated in a scheme to defraud investors in securities issued by subsidiaries of NCFE, NPF VI and NPF XII ("the Programs").
The complaint alleges that NCFE, a private corporation located in Dublin, Ohio, through wholly owned subsidiaries purchased medical accounts receivable from health-care providers and issued notes that securitized those receivables. From at least February 1999 to October 2002, the subsidiaries offered and sold at least $3.25 billion in total notes through fifteen private placements to institutional investors. In October 2002, NCFE suddenly collapsed when investors discovered that the companies had hidden massive cash and collateral shortfalls from investors and auditors. The collapse caused investor losses exceeding $2.6 billion and approximately 275 health-care providers were forced to file for bankruptcy protection.
The complaint further alleges that pursuant to the representations in the offering documents and the Program agreements, the Programs were required to maintain certain reserve-account balances and medical accounts receivable as collateral to secure the notes. Nevertheless, Poulsen, Parrett, Ayers and Speer depleted the Programs' reserve accounts and collateral base by "advancing" at least $1.2 billion from the Programs' funds to health-care providers without receiving eligible receivables in return. These advances were essentially unsecured loans by the Programs to distressed or defunct health-care providers - many of which were wholly or partly owned by NCFE, Poulsen, Parrett and/or Ayers.
According to the complaint, Poulsen, Parrett, Ayers and Speer concealed their fraud from investors and others by: (1) repeatedly transferring funds between the subsidiaries' bank accounts to mask cash shortfalls of as much as $350 million; (2) recording $1 billion or more in non-existent or ineligible medical accounts receivable on the subsidiaries' books; (3) creating and distributing false offering documents, false monthly investor reports, and false accounting records to trustees, investors, potential investors, and auditors; and (4) misrepresenting the status of the Programs' cash accounts and collateral base to investors and others.
In the complaint, the Commission seeks to: (1) permanently enjoin each Defendant from violating the antifraud provisions of the federal securities laws, specifically Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; (2) permanently bar each Defendant from serving as an officer or director of a public company; and (3) order each Defendant to pay disgorgement, prejudgment interest, and a civil monetary penalty, in amounts to be determined.
The Commission has obtained judgments against three other former NCFE executives: Sherry Gibson, former Executive Vice President of Compliance of NCFE; John Snoble, former Vice President and Controller; and Brian Stucke, former Associate Vice-President for Business Services. Each of these individuals has consented to a permanent injunction prohibiting them from violating the federal securities laws; an order barring him or her from serving as an officer or director of a public company; and disgorgement, prejudgment interest, and a civil penalty, in amounts to be determined.
Moreover, each of these three former NCFE executives has pled guilty in federal district court in Columbus, Ohio to criminal charges arising from the scheme to defraud. Gibson pled guilty to conspiracy to commit securities fraud and was sentenced to four years in federal prison, followed by three years of supervised release. Gibson is currently serving her prison sentence at the Lexington Federal Medical Center in Kentucky and is scheduled to be released on March 28, 2008. Stucke pled guilty to conspiracy to commit securities fraud and Snoble pled guilty to money laundering conspiracy; both are awaiting sentencing.
The Commission thanks the United States Attorney's Office for the Southern District of Ohio, the Federal Bureau of Investigation, the Internal Revenue Service and the United States Postal Service for their assistance in this investigation.
The Commission is continuing its investigation in this matter.