$3 billion collapse in 2002.....Keep Digging

Friday, February 15, 2008
Defense lawyers try to put National Century star witness in poor light

A key government witness in its case against five executives of National Century Financial Enterprises Inc. has "psychological issues," a former company employee testified Friday in the 10th day of the fraud trial.

Sherry L. Gibson, once an executive vice president at National Century, is expected to testify next week that she was at the center of an alleged fraud involving senior managers that lead to the Dublin firm's nearly $3 billion collapse in 2002. But defense attorneys got company insider Jessica Bily to say Friday that Gibson was unstable.

Bily, who was an associate vice president in National Century's funding department, recounted for defense attorneys that Gibson treated her staff poorly and in a "demeaning manner." On at least one occasion, she said, Gibson marched all of the women in her department into the restroom for "Toilet Paper 101" because someone hadn't replaced a roll of toilet paper.

Bily said many people at the company tried to avoid Gibson; in her case, she used a senior executive as a buffer.

Gibson was indicted with the other National Century executives but pleaded guilty to fraud charges in 2003 and was ordered to forfeit her entire net worth, estimated $300,000 to $500,000. She is also expected to testify that Lance Poulsen, National Century's CEO, attempted to bribe her with $500,000 last summer to change her testimony.

National Century, now defunct, bought accounts receivables from health-care providers at a discount, packaging the receivables as bonds and selling the securities to investors while collecting on its customers' bills. The Justice Department has accused the executives of using those accounts to defraud investors and divert money for their own benefit.

Five company executives are facing criminal fraud, conspiracy and money laundering charges - Rebecca Parrett, Donald Ayers, Randolph Speer, Roger Faulkenberry and James Dierker.

Poulsen and executive James Happ are scheduled to be tried separately later this year.

All have pleaded not guilty to the charges.

Defense lawyers Friday asked Bily about a wide range of issues, particularly information she gave to government agents that wasn't brought up earlier when she testified under questioning by Justice Department lawyers.

Bily told jurors Wednesday and Thursday there wasn't enough money in two key company accounts to meet government and investor fiduciary requirements because National Century was sending out millions of dollars in unsecured advances to clients. Because of the shortfall, she said, National Century transferred money between accounts to keep investors from finding out.

Under questioning from Parrett's lawyer, Gregory Peterson, Bily admitted the unsecured advances she was concerned about could have been supported by collateral from clients. She also acknowledged auditors knew about unsecured advances National Century was making to clients and they specifically directed her department to create a special bookkeeping category so the advances could be tracked.

Computer systems operating at National Century were also at times inefficient and unreliable, Bily said, which caused bookkeeping problems.

Frederick Benton, the attorney for Speer, asked if there were others responsible for major decisions made at the company besides the defendants, and Bily answered that the board of directors and bank trustees were also important to National Century's day-to-day operations.

Attorneys also attempted to cast doubt on Bily's expertise within her department, getting her to say she never read corporation documents that laid out how her department was expected to work. Bily said she reviewed some of those documents, but mostly relied on the training she received from superiors.