Hospital Debt Buyers Convicted of Fraud and Money Laundering

A federal jury took less than two days to convict five former executives of National Century Financial Enterprises of a scheme to deceive investors about the company’s financial health and the use of their funds.

Donald H. Ayers, Rebecca S. Parrett, Randolph H. Speer, Roger S. Faulkenberry, and James E. Dierker, were found guilty late Thursday of wire fraud, securities fraud, money laundering and conspiracy in a case the U.S. Department of Justice likened to the Enron and WorldCom scandals. The Justice Department said the executives defrauded investors out of nearly $2 billion and caused at least 275 companies to go out of business.  The five face maximum prison sentences ranging from 55 to 140 years in prison. Sentencing is expected in three months.

NCFE’s CEO Lance K. Paulsen, who prosecutors say is responsible for devising the scheme, goes on trial today for witness tampering related to his fraud charges, according to the Columbus Dispatch.

“This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America,” Assistant Director Kenneth W. Kaiser of the FBI Criminal Investigative Division, said in a statement. “The FBI continues to leverage its corporate fraud expertise gained through large-scale investigations such as Enron and WorldCom, to ensure that corporations represent their true health.”  

Ayer’s attorney Brian Dickerson called the verdict “alarming” and said he will file an appeal in 6th Circuit Federal Court with 30 to 60 days.

“I think the verdict was based upon emotion rather than analysis of the evidence,” Dickerson told insideARM. “To have a six week trial and see the jury come back in 12 hours, it’s very alarming to me if I’m an executive.”

Before the FBI raided NCFE’s offices in November 2002, the Dublin, Ohio-based company described itself as the largest healthcare financing company in the U.S., with more than 2,000 clients.  Founded in 1991, the company financed small hospitals, nursing homes and clinics by buying their accounts receivables. NCFE raised money to invest in the companies by selling AAA rated bonds and notes secured by the receivables. 

Prosecutors said the model was successful with NCFE fulfilling its obligations to investors through 2001. But beginning in 1998, the government said the NCFE began loaning millions to health care providers it had ownership in without formalizing the loans. The prosecutors charged that shortfalls occurred, and the executives moved money back and forth between accounts and lied to investors, auditors and ratings companies by fabricating information contained in their financial reports.

“The jury convicted company executives of building a financial house of cards and deceiving investors using financial sleight of hand,” Gregory G. Lockhart, U. S. Attorney for the Southern District of Ohio, said in a statement.

Prosecutors asked Judge Algenon L. Marbley to take the defendants into custody immediately, suggesting they are a flight risk. However, Marbley allowed Ayers and Parrett to remain free under house arrest. The others were ordered to wear electronic monitors until sentencing.