SEC Sues NCFE Executives for Role in $2.6 Billion Fraud
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 21, 2005 The Securities and Exchange Commission today sued top executives of National Century Financial Enterprises, Inc. (NCFE), alleging that they participated in a scheme to defraud investors in securities issued by the subsidiaries of the failed Dublin, Ohio company. NCFE, a private corporation, suddenly collapsed along with its subsidiaries in October 2002 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.
Named in the suit were Lance Poulsen, principal and former Chief Executive Officer of NCFE; 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 of NCFE.
Linda Thomsen, Director of SEC's Enforcement Division, said, “Investors in private offerings, just like investors in public companies, must be able to rely on the truthfulness of the information they receive before investing. We continue to actively pursue those who provide false information to investors in both private and public securities.”
Merri Jo Gillette, Director of the Commission's Midwest Regional Office added, “These defendants, together with others whom the Commission has sued previously, engaged in an elaborate scheme that defrauded investors out of more than $2.6 billion. The Commission will continue to use the full range of its enforcement powers to prosecute individuals who deceive investors and profit at their expense.”
The complaint, which was filed in the United States District Court for the Southern District of Ohio, alleges that NCFE, through two wholly owned subsidiaries, NPF VI and NPF XII (“the Programs”), purchased medical accounts receivable from health-care providers and issued notes that securitized those receivables. From at least February 1999 to October 2002, the Programs offered and sold at least $3.25 billion in notes, through 15 private placements, to institutional investors.
According 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, the complaint alleges that 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:
- repeatedly transferring funds between the subsidiaries’ bank accounts to mask cash shortfalls of as much as $350 million;
- recording $1 billion or more in non-existent or ineligible medical accounts receivable on the subsidiaries’ books;
- creating and distributing false offering documents, false monthly investor reports, and false accounting records to trustees, investors, potential investors, and auditors; and
- 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 already obtained judgments against three other former NCFE executives: Sherry Gibson, a former Executive Vice President of Compliance of NCFE; John Snoble, a former Vice President and Controller; and Brian Stucke, a 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.
For further information contact:
- Merri Jo Gillette, Regional Director, Midwest Regional Office (MRO) – (312) 353-9338
- Robert J. Burson, Senior Associate Regional Director, MRO– (312) 353-7428
Additional materials: Litigation Release 19509