U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19633 / March 31, 2006
SEC v. Brian J. Stucke, Civil Action No. 2:03-CV-01161 (S.D. Ohio)
SEC Obtains Final Judgment Against Former Director of Compliance of Dublin, Ohio-Based National Century Financial Enterprise for Role in $1 Billion Fraud
The Securities and Exchange Commission announced that Brian J. Stucke, a former Director of Compliance and Associate Vice President at National Century Financial Enterprises, Inc. (NCFE), was ordered to disgorge $137,079.10 in ill-gotten gains together with $39,918.80 in prejudgment interest, and to pay $50,000.00 in civil penalties to resolve the Commission's charges that he participated in a scheme to defraud investors in securities issued by subsidiaries of NCFE.
Stucke, age 36, of London, Ohio, consented to the entry of final judgment in the Commission's civil suit against him. The Honorable Edmund A. Sargus of the United States District Court for the Southern District of Ohio entered the final judgment on March 8, 2006. The final judgment permanently enjoins Stucke from future violations of the antifraud provisions of the federal securities laws and orders Stucke to pay a total of $226,997.90 in disgorgement, prejudgment interest and penalties. The final judgment also bars Stucke from serving as an officer or director of a public company. Stucke consented to the final judgment without admitting or denying the allegations of the complaint.
On December 11, 2003, the Commission filed a civil injunctive action alleging Stucke participated in a scheme to defraud investors in securities issued by subsidiaries of NCFE. See Litigation Release No. 18501 (December 11, 2003). NCFE, a private corporation located in Dublin, Ohio, collapsed suddenly in October 2002 when investors discovered that the company and its subsidiaries had hidden massive cash and collateral shortfalls from investors and auditors. The collapse caused investor losses exceeding $1 billion.
The complaint alleges that two wholly owned subsidiaries of NCFE purchased medical accounts receivable from health-care providers and issued notes that securitized those receivables. From at least February 1999 through October 2002, the subsidiaries offered and sold at least $3.25 billion in total notes through private placements to institutional investors.
The complaint further alleges that senior NCFE 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 NCFE or its principals. The unsecured advances were inconsistent with representations made by senior NCFE officials in offering documents provided to investors.
According to the complaint, Stucke aided other NCFE officials by preparing the forms used to authorize improper advances made by other NCFE officials; transferring funds between the subsidiaries' bank accounts to mask cash shortfalls of as much as $400 million; improperly using $101 million in proceeds from a new offering to cover existing reserve-account shortfalls; and creating and distributing false monthly investor reports to trustees, investors, potential investors, and auditors.
Without admitting or denying the allegations in the complaint, Stucke consented to the entry of a final judgment order that: (1) permanently enjoins him from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder; (2) permanently bars him from serving as an officer or director of a public company; and (3) orders him to pay $137,079.10 in disgorgement, $39,918.80 in prejudgment interest, and $50,000.00 in a civil penalty.
The Commission filed its action at the same time that the U.S. Attorney's Office for the Southern District of Ohio unsealed a criminal information against Stucke for the conduct that is the subject of the Commission's complaint. On December 11, 2003, Stucke pled guilty in the United States District Court for the Southern District of Ohio to one count of conspiracy to commit securities fraud.
In a separate civil action, on December 21, 2005, the Commission filed a complaint against the following principals and/or owners of NCFE for their roles in the fraud: Lance Poulsen, principal and former Chief Executive Officer; Donald S. Ayers, principal and former Chief Operating Officer; Rebecca S. Parrett, principal and former Director of NCFE's Accounts Receivable Servicer Department; and Randolph H. Speer, former Chief Financial Officer. See Litigation Release No. 19509 (December 21, 2005).
The Commission thanks the United States Attorney's Office and the Federal Bureau of Investigation for their assistance in this investigation.
The Commission is continuing its investigation in this matter as to other parties.