Jury Decides Fate of Execs that Bought ARs from Struggling Hospitals

The one-time leaders of an Ohio company that financed hospitals and other health care providers are waiting for a federal jury to decide if they defrauded investors out of nearly $2 billion and caused at least 275 companies to go out of business. 

Jurors began deliberating Monday in the case against Donald H. Ayers, James E. Dierker, Roger S. Faulkenberry, Rebecca S. Parrett and Randolph H. Speer, top executives at National Century Financial Enterprises. According to Columbus Dispatch reports, the trial began five weeks ago, more than five years after the FBI raided the company’s Dublin, Ohio offices. NCFE later filed bankruptcy and investors lost at least $1.9 billion. 

U.S. prosecutors allege that NCFE executives committed securities fraud, wire fraud and money laundering when it sold asset-backed notes and bonds to institutional investors valued at more than $4.4 billion between May 1998 and May 2001. Prosecutors charge that NCFE promised to invest in high quality accounts receivables but instead bought debt from struggling health care providers, giving them a cash infusion to pay operating expenses.

Prosecutors said NCFE never collected on the receivables and ended up owning, in whole or part, many of the healthcare providers it invested in, thus creating shortfalls in its account balances. The defendants are also accused of fabricating data in investor reports, double-counting money by moving it back and forth between funds, making other false statements, and loading false data into the accounting system in order to conceal the shortfalls.

Defense attorney Javier Armengau told insideARM that investors received regular interest payments and lump sum payments when the notes retired, a fact that the Department of Justice has acknowledged. Armengau said that NCFE was founded in 1991 as National Century Financials, was renamed NCFE in 1993 and paid investors as promised through 2001. The company did end up owning about half a dozen of the nearly 2,000 healthcare providers it worked with, he said.

He said that NCFE never collected on the receivables it owned but hired an agency to provide the service. Healthcare providers were supposed to deposit their receivables in a lock box.

He said investors misunderstood what constituted an eligible receivable under the terms of their investment agreements with NCFE. “An eligible receivable could be one that was already billed or future receivables,” Armengau told insideARM. “A lot of investors didn’t understand that future receivables could be an eligible receivable.”

Four of 12 NCFE executives charged with fraud have already pled guilty to various charges related to the company’s demise. Four of the five executives now on trial face up to life in prison if convicted of the charges. Dierker faces up to 25 years in prison, Armengau said.

The trial is the first of four scheduled for this year that are related to the company’s collapse, according to the Columbus Dispatch.