one of the largest alleged white-collar crimes after Enron

Health Care Financing Fraud Trial Nears
By ANDREW WELSH-HUGGINS – 18 hours ago

COLUMBUS, Ohio (AP) — Six years after the collapse of the country's biggest health care finance company, a trial is nearing for five executives accused of a $1.9 billion fraud that helped bring the company down.

The case involves one of the largest alleged white-collar crimes after Enron or WorldCom, yet it is largely unknown to the public.

"I tell people all the time, this is the most important case that people have never heard of," said Kathy Patrick, whose Houston firm represents a group of investors that lost a total of $1.6 billion when National Century Financial Enterprises collapsed in 2002.

Two former owners of National Century and three former executives go on trial Monday in federal court in Columbus. The company was based in suburban Dublin.

Federal prosecutors say the officials conspired to defraud investors by diverting money from investors' funds for improper uses, fabricating data in investor reports, and moving money back and forth between accounts to conceal investor fund shortfalls.

The government expects to call 45 witnesses during the trial, which is expected to last six to eight weeks.

Missing from the trial will be National Century's former president and chief executive, Lance Poulsen, a chief target of the government's allegations.

Before his own trial on the fraud charges in August, Poulsen is scheduled for a March trial on charges of witness tampering.

U.S. Attorney Gregory Lockhart said Poulsen, of Port Charlotte, Fla., had a Columbus resident offer a government witness cash in exchange for her not giving damaging testimony against Poulsen. He has pleaded not guilty and is being held in a Ross County jail.

Poulsen is already fighting similar fraud charges in a civil case brought by the Securities and Exchange Commission.

Messages were left for Poulsen's attorney seeking comment.

The five executives going on trial Monday have pleaded not guilty to all charges and maintain their innocence.

Several other National Century executives charged in the scheme have pleaded guilty, and at least four may testify in the trial.

National Century had been the nation's largest source of financing to health care providers. Doctors, hospitals and other providers received money from the company rather than waiting for insurance payments, usually getting 80 or 90 cents on the dollar. National Century was then to collect and keep the full amount of the payments owed by insurance companies.

Providers, by going through National Century, received money owed them earlier than if they waited for full payment from insurance companies.

National Century raised the money to fund its business by selling bonds to investors, who received interest payments followed by a lump-sum payment.

The government alleges National Century executives routinely overpaid some health care providers, many of them entities the executives had a financial interest in. National Century told investors it was making the proper payments, according to the government.

During 2001 and 2002 alone, the government says, company executives provided more than $700 million in investor funds to health care providers.

These advances amounted to high-risk, unsecured loans that were hidden from investors, the government said.

"National Century's business became increasingly dependent upon keeping these certain health care provider clients in business, because the money owed to National Century far exceeded the possible collections from the accounts receivable purchased by National Century," the government said in a Jan. 22 court filing.

National Century's investors say they participated in the program because the investment risks were deemed low. They included the state of Arizona, banks, insurance companies and local governments such as cities and counties.

"These are investors who do not expect or take the risk associated with credit defaults," Patrick said. "These investors were told this was money market equivalent, safe, secure investments, and it evaporated."

Investors represented by Patrick have sued Credit Suisse First Boston over the $1.6 billion they say was lost in the National Century collapse.

Credit Suisse marketed $3 billion of National Century's asset-backed securities. The company declined comment.

Although the focus has been on money lost by investors, people shouldn't discount the blow to doctors and other medical practitioners that relied on National Century to keep their practices running, said W.C. Benton, an Ohio State University business professor who has followed the case.

Some health care companies filed for bankruptcy because of interrupted payments from National Century, and others have filed civil lawsuits against the company.

"It will be a major, major bump in the road in terms of financing health care," Benton said. "A lot of these small practices don't have extra cash. It's going to stop some of the growth in that area."

On the Net:
U.S. Attorney's Office, Southern District of Ohio: http://www.usdoj.gov/usao/ohs