Monday, February 18, 2008

financially unstable were evident six years before it collapsed,

National Century's troubles were evident years ago, jury told
Thursday, February 7, 2008 9:01 PM
By Jodi Andes

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Signs that the National Century Financial Enterprises company was financially unstable were evident six years before it collapsed, the government’s first witness in a fraud trial for its top executives testified today.

William Parizek served as National Century’s director of corporate financing from October 1996 until he resigned in January 1997. He said he moved his family from Kansas to Dublin after already knowing a lot about the company.

His former employer, Koch Industries, asked him to investigate National Century before the oil and gas company agreed to invest in the Dublin-based health-care financing company.

But less than a month after working at National Century, Parizek said he realized investors, such as his former company, had been duped.

“I felt (National Century) would be unable to survive for more than two or three months” because they were so shaky financially, Parizek testified.

National Century loaned more to small hospitals, clinics and nursing homes than the company could repay, he said.

Parizek said he disagreed with National Century’s practices so strongly that he quit without having another job. That meant giving up a $75,000 annual salary that had a potential $3 million bonus if he raised $50 million in equity capital for the company.

Former National Century executives Rebecca S. Parrett, Donald H. Ayers, James E. Dierker, Roger S. Faulkenberry and Randolph H. Speer are on trial on charges of fraud, securities fraud, wire fraud and money laundering in connection with the company’s collapse, which eventually led to the loss of nearly $2 billion by investors.

Parizek’s testimony was cut short this afternoon, after defense attorney Brian Dickerson’s questioning revealed Parizek still had handwritten notes warning company executives about the financial problems.

Prosecutors, though, had not given defense attorneys copies of the notes.

Federal Judge Algenon L. Marbley had the court make copies of Parizek’s 34 pages of notes and gave them to defense attorneys.

Without stating what prosecutors are required to do, Marbley said he expects copies to be given out a day in advance and warned prosecutors not to let it happen again.

The testimony came after a morning in which defense and prosecuting attorneys painted vastly different pictures in opening statements as to the reasons behind the company’s demise.

“This is a case about promises made, promises broken and a massive coverup,” assistant U.S. attorney Doug Squires said.The company’s financial problems stemmed in large part from loaning hundreds of millions more to health-care providers than what the companies qualified for, Squires said.

National Century did have problems with communication among its divisions, but there were always rating agencies, auditors, banks and investors watching everything they did, Dickerson said.

“If it’s a coverup, there’s a lot of people covering up a lot of things,” he said.
Other defense attorneys agreed that the downfall wasn’t the result of any criminal activity at all.

“There is a vast difference between bad business decisions and criminal activity,” James Ervin Jr. said. “This case is about business decisions, not illegal conduct.”

National Century started in 1991 with less than 10 employees and grew to 357. It loaned money to more than 2,000 health-care providers, helping them to stay in business.

“You cannot be the backbone to so many health-care providers across the country if you are not making good decisions,” defense attorney Javier Armengau said.

Before the trial started yesterday, one juror asked to be dismissed.

Marbley said he excused a man because of work and family conflicts. The jury is now made up of eight women and four men, with three women serving as alternates.

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