United States Securities and Exchange Commission
Litigation Release No. 21373 / January 11, 2010
Securities and Exchange Commission v. Lance Poulsen, et al., Civil Action No. 2:05-CV-01142 (S.D. Ohio)
SEC Obtains Final Judgments Against Former Chief Executive Officer and Other Senior Officers and Directors of National Century Financial Enterprise for Their Roles in $2.38 Billion Securities Fraud
The Securities and Exchange Commission announced that the court 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 final judgments, issued by Judge James L. Graham of the U. S. District Court for the Southern District of Ohio on January 8, 2010, permanently enjoin Poulsen, Ayers, Parrett and Speer from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, and permanently bar each of them from serving as an officer or director of a public company. The court further orders Parrett to pay a civil penalty of $120,000. Poulsen, formerly of Port Charlotte, Florida; Ayers, formerly of Ft. Myers, Florida; and Speer, formerly of Fayetteville, Georgia, consented to entry of final judgments without admitting or denying the allegations in the complaint. The court entered the final judgment against Parrett, formerly of Carefree, Florida, in absentia, because she is a fugitive from justice.
On December 21, 2005, the Commission filed its civil action against Poulsen, Ayers, Parrett and Speer, alleging that they participated in a scheme to defraud investors in securities issued by subsidiaries of NCFE. See Litigation Release No. 19509 (December 21, 2005). 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.
In a related criminal matter, a jury in the United States District Court for the Southern District of Ohio had earlier convicted Poulsen, Ayers, Parrett and Speer for criminal violations, including securities fraud, based on the same facts underlying the Commission's civil action. On August 6, 2008, the court sentenced Ayers to 15 years in prison and Speer to 12 years in prison. On March 27, 2009, the court sentenced Poulsen to 30 years in prison and sentenced Parrett in absentia to 25 years in prison. Poulsen, Ayers, Parrett and Speer were also held jointly and severally liable to pay $2.38 billion in restitution to the victim investors.
The Commission thanks the United States Attorney's Office for the Southern District of Ohio and the Federal Bureau of Investigation for their assistance in this significant securities fraud investigation.