Thursday, November 06, 2008

National Century Financial Enterprises CEO Convicted

Last week, multiple news stories described convictions in the case of a remarkable health care fraud, affecting the now bankrupt National Century Financial Enterprises. Let me begin with a description of what the company did, from an article in the Columbus Dispatch:

National Century Financial Enterprises ... began in 1991 to offer financing to small hospitals, clinics, nursing homes and other health-care providers. Using investors' funds, the Dublin company bought the providers' debt and gave them cash to cover expenses. It kept a fee or percentage of what was collected.

Or, as Columbus Business First put it,

A financier for health-care providers like doctors’ offices and hospitals, National Century’s bread and butter was buying accounts receivable from care providers at a discount, then securitizing the receivables into AAA-rated bonds for sale to investors.

At its peak, the company employed more than 350 workers at its office campus in Dublin while recording annual revenue of more than $250 million.

However, prosecutors charged that it was all a huge fraud, per an earlier story in the Columbus Dispatch:

A Dublin-based health-care lender with a good business model was left in ruins -- and owing billions of dollars -- as a result of greed and a shell game played unknowingly by investors.

It's a game that ended only after greed consumed company reserves and investor money dried up. That's the history of National Century Financial Enterprises, federal prosecutor Leo Wise told jurors in closing arguments yesterday in the trial of Lance K. Poulsen, 65, the company's founder and chief executive.

Poulsen has been on trial since Oct. 1 on 13 counts of fraud tied to the company's collapse. Jury deliberations are expected to begin today.

'Ladies and gentlemen, this is a case of staggering fraud,' Wise said. 'It is one of the largest frauds the FBI has ever investigated. The total is over $2 billion.'

Poulsen, again the company's founder and CEO, was convicted, per Columbus Business First,

A federal court jury has found National Century Financial Enterprises’ co-founder Lance Poulsen guilty of directing what the government called the biggest corporate fraud to surface at a privately held U.S. business.

The 65-year-old Poulsen was found guilty on all of the charges facing him – one count each of conspiracy to commit securities fraud, wire fraud and conspiracy to commit money laundering, as well as three counts of money laundering and six counts of securities fraud.

Poulsen was not the only leader of National Century Financial Enterprises who was convicted or pleaded guilty, again per Columbus Business First,

It also was the second time a federal jury found National Century executives guilty of crimes. Five of Poulsen’s co-executives were convicted in March of multiple fraud-related charges. Donald Ayers, Rebecca Parrett, Roger Faulkenberry, Randolph Speer and James Dierker are serving prison terms. Parrett, a co-founder of National Century, disappeared in March before she was scheduled for a court appearance and remains at large.

This was actually not Poulsen's criminal conviction on charges related to the collapse of National Century Financial Enterprises, again from Columbus Business First,

Poulsen heard a guilty verdict earlier this year on a related case. He and associate Karl Demmler were convicted in the witness tampering trial in March after trying to bribe government witness Sherry Gibson into changing her planned testimony. Poulsen was given 10 years in prison and ordered to pay a $17,500 fine on the bribery conviction, but Demmler has yet to be sentenced.

In a foreshadowing of the current worldwide financial crisis, it appears that other, and more widely respected financial institutions got caught up in this mess, per Bloomberg News,

JPMorgan Chase & Co., the largest U.S. bank by market value, agreed to pay $425 million in 2006 to settle claims by Arizona noteholders. The noteholders said JPMorgan and other banks underwrote or were trustees of the notes used to defraud investors.

The National Century Financial Enterprises collapse affected not only investors, but health care providers, again per Bloomberg,

National Century's collapse hastened the bankruptcies of 275 hospitals, clinics, nursing homes and other health-care providers, according to prosecutors and regulators.

So add Lance Poulsen to our rogue's gallery of health care leaders convicted of fraud, corruption, or other white-collar crimes related to their health care leadership roles.

This is yet another case suggesting that something has gone very wrong with the leadership of important health care organizations. That the activities that doomed National Century Financial Enterprises went on for so long, and involved so many of its top leaders, suggest a disastrously unethical corporate culture that seemingly was effectively concealed from both investors and the health care providers with whom the company did business.

Again, this case argues why we need more transparency, accountability, and commitment to ethical principles in the governance of health care organizations. More specifically, and as I have argued before, this case suggests the need for developing a licensure process for leaders of health care organizations. Licensing doctors and health professionals has been going on for a long time. But now leaders of health care organizations, from hospitals to drug companies, have as much if not more influence over health care, and hence the health and safety of patients as do doctors. Yet there are no requirements that leaders of health care organizations have any particular educational background, knowledge, commitment to health care values, or, for that matter, that they have not committed crimes. Given the scope of bad leadership discussed on Health Care Renewal, maybe a licensing process for health care executives would at least ensure that they have not served time in the brig for theft.


Anonymous said...

It is important to note this case happened in the rust belt, not LA, NYC, or Chicago. When we think of fraud of this magnitude we tend to think of some financial master mind. The reality, sadly, is people will take advantage anywhere and anyway they can.

We also to be mindful of the loss of jobs and disruption to the medical community due to the demise of various institutions. This has a cost well above the dollars involved.

Steve Lucas

Susan Golden said...

You have forgotten the most important culprit here...
Do you know who James K Happ is?
Do you know where he came from prior to arriving at NCFE?
HCA..& Richard Rainwater!
Need proof...go to my blog

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