The Rainwater Prophecy
Richard Rainwater made billions by knowing how to PROFIT FROM A CRISIS. Now he foresees the biggest one yet.
By OLIVER RYAN
December 26, 2005
(FORTUNE Magazine) – Richard Rainwater doesn't want to sound like a kook. But he's about as worried as a happily married guy with more than $2 billion and a home in Pebble Beach can get. Americans are "in the kind of trouble people shouldn't find themselves in," he says. He's just wary about being the one to sound the alarm.
Rainwater is something of a behind-the-scenes type--at least as far as alpha-male billionaires go. He counts President Bush as a personal friend but dislikes politics, and frankly, when he gets worked up, he says some pretty far-out things that could easily be taken out of context. Such as: An economic tsunami is about to hit the global economy as the world runs out of oil. Or a coalition of communist and Islamic states may decide to stop selling their precious crude to Americans any day now. Or food shortages may soon hit the U.S. Or he read on a blog last night that there's this one gargantuan chunk of ice sitting on a precipice in Antarctica that, if it falls off, will raise sea levels worldwide by two feet--and it's getting closer to the edge.... And then he'll interrupt himself: "Look, I'm not predicting anything," he'll say. "That's when you get a little kooky-sounding."
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Rainwater is no crackpot. But you don't get to be a multibillionaire investor--one who's more than doubled his net worth in a decade--through incremental gains on little stock trades. You have to push way past conventional thinking, test the boundaries of chaos, see events in a bigger context. You have to look at all the scenarios, from "A to friggin' Z," as he says, and not be afraid to focus on Z. Only when you've vacuumed up as much information as possible and you know the world is at a major inflection point do you put a hell of a lot of money behind your conviction.
Such insights have allowed Rainwater to turn moments of cataclysm into gigantic paydays before. In the mid-1990s he saw panic selling in Houston real estate and bought some 15 million square feet; now the properties are selling for three times his purchase price. In the late '90s, when oil seemed plentiful and its price had fallen to the low teens, he bet hundreds of millions--by investing in oil stocks and futures--that it would rise. A billion dollars later, that move is still paying off. "Most people invest and then sit around worrying what the next blowup will be," he says. "I do the opposite. I wait for the blowup, then invest."
The next blowup, however, looms so large that it scares and confuses him. For the past few months he's been holed up in hard-core research mode--reading books, academic studies, and, yes, blogs. Every morning he rises before dawn at one of his houses in Texas or South Carolina or California (he actually owns a piece of Pebble Beach Resorts) and spends four or five hours reading sites like LifeAftertheOilCrash.net or DieOff.org, obsessively following links and sifting through data. How worried is he? He has some $500 million of his $2.5 billion fortune in cash, more than ever before. "I'm long oil and I'm liquid," he says. "I've put myself in a position that if the end of the world came tomorrow I'd kind of be prepared." He's also ready to move fast if he spots an opening.
His instincts tell him that another enormous moneymaking opportunity is about to present itself, what he calls a "slow pitch down the middle." But, at 61, wealthier and happier than ever before, Rainwater finds himself reacting differently this time. He's focused more on staying rich than on getting richer. But there's something else too: a sort of billionaire-style civic duty he feels to get a conversation started. Why couldn't energy prices skyrocket, with grave repercussions, not just economic but political? As industry analysts debate whether the world's oil production is destined to decline, the prospect makes him itchy.
"This is a nonrecurring event," he says. "The 100-year flood in Houston real estate was one, the ability to buy oil and gas really cheap was another, and now there's the opportunity to do something based on a shortage of natural resources. Can you make money? Well, yeah. One way is to just stay long domestic oil. But there may be something more important than making money. This is the first scenario I've seen where I question the survivability of mankind. I don't want the world to wake up one day and say, 'How come some doofus billionaire in Texas made all this money by being aware of this, and why didn't someone tell us?'"
***
It feels like the last place you'd go looking for a rich man. Lake City, S.C., is a town of 6,500 in the low country two hours northwest of Charleston. Once the bustling home to small, independent tobacco farmers, now it's mostly a collection of abandoned gas stations, roadside churches, and fading brick walls with TRUST JESUS painted on them in big black letters. Unemployment hovers around 10% and would be worse if the Taiwanese plastics manufacturer Nan Ya hadn't opened up a sprawling factory on the edge of town.
Rainwater spends a lot of time in Lake City because of his wife, Darla Moore. A former star in bankruptcy financing at Chemical Bank who was once dubbed the "toughest babe in business" by FORTUNE, Moore, 51, grew up here. Her grandfather was one of the small tobacco farmers. Nowadays she lives on her grandparents' old farm. (Moore and Rainwater also own a lavish home in Charleston.) Rainwater calls Lake City the "middle of bum-fuck nowhere." But the truth is he's got everything he needs here: cable TV, a telephone, an automatic coffeemaker, a decent golf course up the road, and a fast Internet connection.
Measured against the languid pace of the surroundings, Rainwater's usual surplus of physical energy seems even more pronounced in Lake City. Tall, tan, and sturdily built, he has a hard time sitting still. He's run four marathons and offers that, when he was 40, he unexpectedly set the record in his age group on something called a "modified Balke protocol" treadmill test, a measure of the body's efficiency in absorbing oxygen. Rainwater bounces around the farm in shorts, a polo shirt, and a baseball cap, maintaining a running dialogue with Moore (whom he calls "Precious"), his staff, and anyone else who happens to be within earshot or on his speed dial. "He's maternal," says Moore. "And I'm paternal."
In the ongoing Richard and Darla show, Moore supplies the dry one-liners to his constant chatter. Lately she's been affectionately calling him "Dr. Doom." But she's not dismissing his concerns. Or harboring any illusions that she can talk him out of making a big investment once he settles on a theme. As president of Rainwater Inc. in the '90s, she was his partner in his last two big bets. And though she's at a stage in life where she might prefer to simplify her affairs rather than go off on another wild ride, she knows that soon he'll have to act. "We've been married for 15 years," she says. "This is the third time I've seen this. The massive intake of information has been complete. Now he's agonizing. We're in what I refer to as the raving mode--the latter stages of rave. This is the refinement stage. Then we're going to make decisions."
"It's not raving," he says. "I promise I am not a kook."
"You're kooking out a little. But I've seen the process before. I saw you go from zero to 100 miles per hour in real estate."
"And you saw me get into oil ten years ago," he says, then protests, "But I'm on the edge of being so old that it doesn't matter anymore. I've won the heavyweight championship before. Instead of taking one more swing, maybe I should just retire a winner." Moore's not buying it. "Buckwheat," she says, using her nickname for him, "There's not a chance in a million you won't swing. He can't not. It's the nature of the animal."
***
"Rainwater," the voice on the phone announces. "Now, type L-A-T-O-C into Yahoo, and scroll down to the seventh item." Rainwater doesn't use e-mail. Rather, he uses rapid-fire phone calls to spread the gospel he discovers every morning on the web. One day it might be the decline of arable land in Malaysia. The next it could be the Olduvai theory of per capita energy consumption. "L-A-T-O-C" stands for LifeAfterTheOilCrash.net, a blog edited by Matt Savinar, 27, of Santa Rosa, Calif. (which Rainwater calls "a hotbed for survivalist types"), who was on his way to being a lawyer when his side project began climbing up Google's rankings. The site is now the No. 2 result of a search on "oil." Savinar keeps a running diary of all manner of news and information relating to "peak oil," a once-wonkish geological debate that has recently crossed over not only to late-night talk shows but even onto the floor of the U.S. House of Representatives.
"Peak oil" theorists posit that global production is at or near its historic ceiling and will begin a long, inexorable decline. They worry that America is not ready for the downturn, for skyrocketing prices and even shortages. Savinar's site's opening line is, "Civilization as we know it is coming to an end." Rainwater has been checking it every morning since September, when his personal anxiety alert level moved to orange. "I can almost pinpoint the date," says Moore. "It was right after he read that book."
In August a friend gave Rainwater a copy of The Long Emergency, a dystopic view of the future written by ex-Rolling Stone writer James Kunstler, otherwise known for his passionate dislike of suburbia. Taking peak oil as a given, Kunstler argues that Americans have been "sleepwalking" through the end of a "100-year fossil fuel fiesta." The problem, he points out, is not that the world will run out of oil tomorrow, but rather that the lack of growth in oil production will wreak havoc on a global economic system predicated on perpetual expansion. Kunstler's "long emergency" is a decidedly unpleasant interval during which the world--and Americans in particular--must adapt to a post-oil regime of scarce energy and economic stagnation, a time of likely wars and the disappearance of all-American things like Wal-Mart and cul-de-sac homes 45 minutes by minivan from the office.
Rainwater doesn't completely buy into Kunstler's doom and gloom. "It's the Z scenario," he says. But at the same time, he worries that Kunstler isn't wrong enough, and he's been buying extra copies of the book and passing them around to the many titans of capitalism who are his protégés. It's not the first doomsday book in Rainwater's life: His big bet on oil in the late '90s was kicked off by a work called Beyond the Limits, the sequel to a '70s sensation called The Limits of Growth. Written by three professors armed with an MIT-bred computer called World3, the Limits books projected that, left unchecked, human population would, within 100 years, overshoot the capacity of the planet to serve up sufficient vitamins and minerals--let alone absorb all the waste and pollution--to keep everyone healthy. Rainwater took the book to heart. "Right after I read it, I said, 'They've figured it out, I'm going to follow this thing.' "
His ensuing oil bet was only the latest triumph for the grandson of a Lebanese immigrant (on his mother's side) who, according to family lore, picked up his last name from a Cherokee ancestor. His mother had worked at J.C. Penney to put him and his brother through the University of Texas. In 1970, after a short stint at Goldman Sachs, he joined Stanford Business School pal Sid Bass in managing the Bass family money in Fort Worth. Over the next decade and a half, he helped turn the family's modest $50 million fortune into one worth upwards of $5 billion.
In the process Rainwater's investing style emerged: analytically rigorous but opportunistic and Texas-sized in its audacity. He'd buy public companies or private. He'd use futures and leverage, sometimes 20 to 1. He even started companies. If he thought an idea was right, he put capital behind it. With the Basses, he resurrected the likes of Disney--recruiting Michael Eisner to be CEO--and bet early on cellphones. Later, when he went out on his own in 1986, his office drew a who's who of hard-charging capitalists to Fort Worth. In the heyday of Rainwater Inc., Eddie Lampert, the hedge fund tycoon turned head of Sears Holdings, had a desk, as did Daniel Stern, now of $3 billion Reservoir Capital. Ken Hersh, who has compounded money at 31% annually for 17 years at Natural Gas Partners, started there. With Rick Scott, Rainwater founded Columbia Healthcare, which merged with HCA and became the country's biggest for-profit hospital company (Scott was later forced out as CEO amid a federal fraud investigation). Even George W. Bush kept an office, when he and Rainwater were putting together the Texas Rangers stadium deal.
***
On a Tuesday afternoon in mid-November, Rainwater and Moore are holding court in the 14th-floor conference room of Reservoir Capital in Midtown Manhattan, where he camps out when he's in New York (he has money invested with the fund). He has gathered Reservoir's Stern, Goldman alum and Crestview Partners co-founder Barry Volpert, and a couple of guests, and he is expounding on the implications of the peak-oil theory: "I believe in Hubbert's Peak. I came out of Texas. I watched oil fields reach peak and go over, and I've watched how people would do all they could, put whatever amount of money into the field, and they couldn't do anything about it."
In the 1940s and 1950s, a Shell geologist named M. King Hubbert observed that the production from any given oil field follows a bell curve, with annual volumes increasing until half the oil in the field is depleted, and declining thereafter. Basically, the bottom oil is harder to extract. King reasoned that production from all U.S. fields would follow a similar curve and predicted in 1956 that total U.S. oil production would peak in the early 1970s. His analysis caused a furor and was widely disparaged, but proved correct. "Hubbert's Peak" entered the lexicon of oil analysis--one of the great geological I-told-you-so's. Forty-nine years later, a growing number of noted geologists and industry analysts suggest that the global oil supply may now be topping out, a claim that has been met by skepticism from yet other geologists and economists who say higher prices will spawn both more discovery and improved recovery from existing fields.
Rainwater sides with the imminent peak crowd, and can rattle off facts to back up his argument. "In 1988 there were 15 million barrels a day of shut-in production"--meaning surplus that could be tapped--"and the world was using about 55 million barrels of oil. Today the world is using over 80 million, and there's no shut-in production left. We've used it up, through the combination of depletion and growth." In other words, the spigot can't be opened any wider.
What concerns him most is the conflict that he thinks an oil shortage will precipitate. What happens when people get blindsided by prices rocketing past any level they have contemplated--especially when you factor in other challenges America faces? "We've got a lot of things going on simultaneously," he says. "The world as we know it is unwinding with respect to Social Security, pensions, Medicare. We're going to have dramatically increased taxes in the U.S. I believe we're going into a world where there's going to be more hostility. More people are going to be asking, 'Why did God do this to us?' Whatever God they worship. Alfred Sloan said it a long time ago at General Motors, that we're giving these things during good times. What happens in bad times? We're going to have to take them back, and then everybody will riot.' And he's right."
***
Part of Rainwater's routine when he's down on the farm is to go for gizzards at Allison's, a no-frills truck stop up the road. Driving in a red BMW SUV on the Tuesday before Thanksgiving, he points out who lives where: the local doctor, the Taiwanese Nan Ya workers. He chokes up momentarily passing the home of a woman who worked at the farm, whose son has just returned from serving in Iraq. The sheer incongruity of his wealth in Lake City is not lost on him. But at Allison's he seems right at home, lathering the deep-fried gizzards with hot sauce and self-serving a large coffee which he spices at the hot chocolate machine.
Back on the farm that night, he and Moore discuss future projects with their landscaper, Jenks Farmer, over a glass of wine. Farmer, who has a master's in horticulture and lives on the property, maintains Moore's extensive gardens, including vegetable beds that produce all year round. That morning Rainwater had been surfing the web, researching greenhouses in his quest to further ensure a steady flow of food through the winter. At his prodding, Moore has installed an emergency generator and 500-gallon storage tanks for diesel fuel and water. When Rainwater says that he's thinking about opening a for-profit survivability center, it's not entirely clear that he's joking.
Later in the night Rainwater returns to musing on how different his lot is from the residents of Lake City. And then, returning to the debate in his head, he gets a serious look on his face and says: "This is going to get a little religious. I ask why I was blessed with this insightfulness. Everyone who has achieved something, scientists, ballplayers, thinks they were given their talent for a reason. Why me? Was I given this insightfulness at this particular time? Or was I just given this insightfulness?" He pauses. "I just want people to look out. 'Cause it could be bad." FEEDBACK oryan@fortunemail.com
Sunday, February 3, 2008
NCFE trial starts on Monday ....but who or where is the 'BIG DADDY' that is M I A ? You know the BRAINSTORM of the scheme!
I believe you are missing the Much BIGGER picture here.
Look back into 1999, 2000 and dig into a little research to find out what health care company brainstormed this fraudulant scheme that once combined with "NCFE" is LARGER than Enron!
Need a hint? Who, other than Lance , is not going to trial this Monday with the rest of the gang? And where did this missing executive come from prior to his arrival at "NCFE"?
Trials in huge fraud case to begin
Sunday, February 3, 2008 3:32 AM
By Jodi Andes
THE COLUMBUS DISPATCH
National Century co-founder and former chief executive Lance K. Poulsen's lifestyle afforded him the use of a 60-foot yacht.
By the numbers $4.4 billion invested in National Century in its last four years
$1.9 billion lost by investors 10 million-plus documents compiled by prosecutors preparing for three fraud trials 45 prosecution witnesses 5 defendants who could go to prison for life if convicted of all charges As fraud cases go, the National Century Financial Enterprises case ranks up there with Enron and WorldCom, prosecutors say.
Investors in the Dublin-based company lost more than $1.9 billion after the financing giant filed for bankruptcy in 2002. And at least 275 health-care companies collapsed, putting thousands out of work and affecting thousands of patients.
National Century's collapse never gained much attention outside business circles, largely because it was a privately held company. But some, such as large pension funds and the state of Arizona, lost millions.
"I always say it's the largest, most significant case you've never heard of," said Kathy Patrick, an Arizona attorney representing 30 clients who lost a total of $1.6 billion.
By comparison, the scandals that destroyed publicly traded Enron and WorldCom hit thousands of stockholders. The Enron scandal wiped out 5,600 jobs and $2.1 billion in pensions and destroyed $60 billion in market value. The $11 billion WorldCom accounting fraud resulted in investor losses estimated at $180 billion, and it put more than 20,000 people out of work and destroyed their retirement funds.
Eleven people have been charged in connection with the National Century collapse. Four already have pleaded guilty and agreed to testify against the others.
The rest will defend themselves in four trials that are expected to span most of the year. The first starts Monday, and the last is scheduled to begin on Oct. 1.
Former CEO and co-founder Lance K. Poulsen is to be tried twice -- on March 7, with a co-defendant, on a charge of witness tampering, and again on Aug. 4, on charges of fraud, conspiracy and money laundering.
The trial that starts on Monday is expected to last at least two months. Facing charges ranging from conspiracy to money laundering are the other two co-founders, Rebecca S. Parrett and Donald H. Ayers, as well as former executives Randolph H. Speer, Roger S. Faulkenberry and James E. Dierker. If convicted on all charges, all but Dierker could be sentenced to life in prison.
At 39, Dierker is the youngest defendant. He could be sentenced to 25 years in prison if convicted.
Those familiar with the case say it is one to watch because of its immediate and continuing effect on the national economy.
A company is born
Ayers, Parrett and Poulsen founded National Century in 1991 to offer financing to small hospitals, clinics, nursing homes and other health-care providers.
National Century agreed to buy the providers' uncollected debt owed by patients, or accounts receivable, and give the providers cash to cover expenses. The smaller companies didn't have to wait for insurance reimbursement, and National Century kept a fee or percentage of what it collected.
To get cash to give the smaller companies, National Century sold bonds to investors -- including some big pension funds, which were among those hit hardest by National Century's collapse.
The pension fund for New York City police, firefighters and other workers began investing in National Century in 2000. The company's bonds were attractive because of their life span -- usually three years -- and high bond rating, said New York lawyer Steve Fineman.
Fitch Investor Services and Standard & Poor's gave National Century the highest rating -- AAA.
"It showed it was a conservative investment," Fineman said.
But within two years, and only a year after the Sept. 11 terrorist attack, the New York City workers' fund lost $89 million. The hit was not big enough to cause workers to lose their pensions, but big enough that the fund still is trying to recoup five years later, he said.
New York City workers were not alone.
A consortium of Arizona investors, including the state government, was hit hardest and has sued National Century executives for $1.6 billion. Millions came from the state's investment pool, money that funds such things as roads and schools and supplements the expenses of everyday government, said Kathy Patrick, who represents the consortium.
After the money was lost, public projects were delayed and some workers were laid off, Patrick said.
The cost of the National Century collapse hasn't yet been measured, but it's safe to assume that consumers are feeling the effects, said W.C. Benton, a health-care business professor at Ohio State University's Fisher College of Business
"The fact that the doctors go out of business means fewer clinics," he said. "Prices increase because of fewer places of service."
National Century financed a few small hospitals, and at least one in Texas filed for bankruptcy, but no hospital in Ohio was affected, said Tiffany Himmelreich, a spokeswoman for the Ohio Hospital Association.
Services proved popular
Early on, National Century carved out an attractive business niche.
Few if any companies were providing such a service at the time, Benton said. And the three founders had the experience to make it work.
Poulsen had a background in marketing and financing. Ayers was a former president of Grant Medical Center. Parrett, now divorced from Ayers, had experience handling receivable accounts at Grant. Obtaining the necessary capital wasn't a problem. National Century raised $4.4 billion from investors between 1998 and 2002 to lend to health-care providers.
The company's headquarters were at 6125 Memorial Dr. in Dublin. National Century grew to have 327 employees in the suburb and three other cities.
From the outside, its loans appeared very safe, Patrick said.
For every dollar loaned out, the company promised to keep 17 cents in reserve. Health-care providers were told they would receive 80 or 90 cents on the dollar of the debt assumed for collection by National Century, federal documents show.
Getting less than what they were owed in exchange for money in hand quickly was appealing to physicians for several reasons, Benton said.
They wouldn't have to wait months for Medicaid reimbursement or for patients to pay their bills. Nor would they have to bother with paper-intensive billing, a side of the business most doctors dislike, he said.
"It was a great idea to keep from having to have some billing center in your office," Benton said.
National Century became a reliable -- and sometimes the sole -- stream of income for health-care providers as the company grew to become one of the nation's largest health-care financers, Benton said.
That's why so many health-care providers collapsed in the wake of National Century's bankruptcy.
"When the cash is cut off, you can't pay your suppliers or your employees," Benton said.
Business practices questioned
By 2000, allegations of wrongdoing began to surface.
Assistant U.S. attorneys say that the company's collapse resulted from criminal decisions, not a failed business plan.
Greed set in, they say.
According to federal indictments:
Company executives loaned money to companies in which they were principal stakeholders "to pay operating expenses of these health-care providers which was to benefit Poulsen, Ayers and Parrett."
Executives used the money to support lavish lifestyles, which involved such things as Poulsen's 60-foot yacht and Parrett's 4,725-square-foot Arizona home with a five-car garage.
In some cases, National Century agreed to take over providers' debts without formally buying the accounts, which amounted to the company having millions in unsecured loans. In 2001 and 2002, National Century advanced $700 million in loans to companies without purchasing the accounts receivable.
As reserves weakened, investors and Securities Exchange Commission officials were given false financial reports that said National Century's two subsidiaries, NPF VI and NPF XII, were healthy. But money was being shifted between the two to make it appear they had adequate money in reserve, the indictment says.
The company declared bankruptcy in 2002 and shut down shortly after.
Company executives have maintained their innocence. Attorneys and U.S. District Judge Algenon L. Marbley have prepared for a long, tedious legal fight.
One of the challenges will be to make topics such as "securitization" easy for jurors to understand, said Greg Peterson, Parrett's attorney. He is concerned that complex business practices will be overly simplified and misrepresented.
"Oversimplifying things is very dangerous," Peterson said. "These are very dry issues. It's a tall order for a juror to sit there and pay attention."
On the other side, victims fear that if National Century executives emerge unscathed, that could provide an arena for fraud in an investment area that has long been considered safe, Patrick said.
"These are the types of investments that are held in mutual funds and pension funds across the country," she said. "It's important that the investments be true because pensions rely on them.
"This is a really pivotal trial."
Dispatch staff reporter Suzanne Hoholik and researchers Linda Deitch and Amy Disch contributed to this story.
Look back into 1999, 2000 and dig into a little research to find out what health care company brainstormed this fraudulant scheme that once combined with "NCFE" is LARGER than Enron!
Need a hint? Who, other than Lance , is not going to trial this Monday with the rest of the gang? And where did this missing executive come from prior to his arrival at "NCFE"?
Trials in huge fraud case to begin
Sunday, February 3, 2008 3:32 AM
By Jodi Andes
THE COLUMBUS DISPATCH
National Century co-founder and former chief executive Lance K. Poulsen's lifestyle afforded him the use of a 60-foot yacht.
By the numbers $4.4 billion invested in National Century in its last four years
$1.9 billion lost by investors 10 million-plus documents compiled by prosecutors preparing for three fraud trials 45 prosecution witnesses 5 defendants who could go to prison for life if convicted of all charges As fraud cases go, the National Century Financial Enterprises case ranks up there with Enron and WorldCom, prosecutors say.
Investors in the Dublin-based company lost more than $1.9 billion after the financing giant filed for bankruptcy in 2002. And at least 275 health-care companies collapsed, putting thousands out of work and affecting thousands of patients.
National Century's collapse never gained much attention outside business circles, largely because it was a privately held company. But some, such as large pension funds and the state of Arizona, lost millions.
"I always say it's the largest, most significant case you've never heard of," said Kathy Patrick, an Arizona attorney representing 30 clients who lost a total of $1.6 billion.
By comparison, the scandals that destroyed publicly traded Enron and WorldCom hit thousands of stockholders. The Enron scandal wiped out 5,600 jobs and $2.1 billion in pensions and destroyed $60 billion in market value. The $11 billion WorldCom accounting fraud resulted in investor losses estimated at $180 billion, and it put more than 20,000 people out of work and destroyed their retirement funds.
Eleven people have been charged in connection with the National Century collapse. Four already have pleaded guilty and agreed to testify against the others.
The rest will defend themselves in four trials that are expected to span most of the year. The first starts Monday, and the last is scheduled to begin on Oct. 1.
Former CEO and co-founder Lance K. Poulsen is to be tried twice -- on March 7, with a co-defendant, on a charge of witness tampering, and again on Aug. 4, on charges of fraud, conspiracy and money laundering.
The trial that starts on Monday is expected to last at least two months. Facing charges ranging from conspiracy to money laundering are the other two co-founders, Rebecca S. Parrett and Donald H. Ayers, as well as former executives Randolph H. Speer, Roger S. Faulkenberry and James E. Dierker. If convicted on all charges, all but Dierker could be sentenced to life in prison.
At 39, Dierker is the youngest defendant. He could be sentenced to 25 years in prison if convicted.
Those familiar with the case say it is one to watch because of its immediate and continuing effect on the national economy.
A company is born
Ayers, Parrett and Poulsen founded National Century in 1991 to offer financing to small hospitals, clinics, nursing homes and other health-care providers.
National Century agreed to buy the providers' uncollected debt owed by patients, or accounts receivable, and give the providers cash to cover expenses. The smaller companies didn't have to wait for insurance reimbursement, and National Century kept a fee or percentage of what it collected.
To get cash to give the smaller companies, National Century sold bonds to investors -- including some big pension funds, which were among those hit hardest by National Century's collapse.
The pension fund for New York City police, firefighters and other workers began investing in National Century in 2000. The company's bonds were attractive because of their life span -- usually three years -- and high bond rating, said New York lawyer Steve Fineman.
Fitch Investor Services and Standard & Poor's gave National Century the highest rating -- AAA.
"It showed it was a conservative investment," Fineman said.
But within two years, and only a year after the Sept. 11 terrorist attack, the New York City workers' fund lost $89 million. The hit was not big enough to cause workers to lose their pensions, but big enough that the fund still is trying to recoup five years later, he said.
New York City workers were not alone.
A consortium of Arizona investors, including the state government, was hit hardest and has sued National Century executives for $1.6 billion. Millions came from the state's investment pool, money that funds such things as roads and schools and supplements the expenses of everyday government, said Kathy Patrick, who represents the consortium.
After the money was lost, public projects were delayed and some workers were laid off, Patrick said.
The cost of the National Century collapse hasn't yet been measured, but it's safe to assume that consumers are feeling the effects, said W.C. Benton, a health-care business professor at Ohio State University's Fisher College of Business
"The fact that the doctors go out of business means fewer clinics," he said. "Prices increase because of fewer places of service."
National Century financed a few small hospitals, and at least one in Texas filed for bankruptcy, but no hospital in Ohio was affected, said Tiffany Himmelreich, a spokeswoman for the Ohio Hospital Association.
Services proved popular
Early on, National Century carved out an attractive business niche.
Few if any companies were providing such a service at the time, Benton said. And the three founders had the experience to make it work.
Poulsen had a background in marketing and financing. Ayers was a former president of Grant Medical Center. Parrett, now divorced from Ayers, had experience handling receivable accounts at Grant. Obtaining the necessary capital wasn't a problem. National Century raised $4.4 billion from investors between 1998 and 2002 to lend to health-care providers.
The company's headquarters were at 6125 Memorial Dr. in Dublin. National Century grew to have 327 employees in the suburb and three other cities.
From the outside, its loans appeared very safe, Patrick said.
For every dollar loaned out, the company promised to keep 17 cents in reserve. Health-care providers were told they would receive 80 or 90 cents on the dollar of the debt assumed for collection by National Century, federal documents show.
Getting less than what they were owed in exchange for money in hand quickly was appealing to physicians for several reasons, Benton said.
They wouldn't have to wait months for Medicaid reimbursement or for patients to pay their bills. Nor would they have to bother with paper-intensive billing, a side of the business most doctors dislike, he said.
"It was a great idea to keep from having to have some billing center in your office," Benton said.
National Century became a reliable -- and sometimes the sole -- stream of income for health-care providers as the company grew to become one of the nation's largest health-care financers, Benton said.
That's why so many health-care providers collapsed in the wake of National Century's bankruptcy.
"When the cash is cut off, you can't pay your suppliers or your employees," Benton said.
Business practices questioned
By 2000, allegations of wrongdoing began to surface.
Assistant U.S. attorneys say that the company's collapse resulted from criminal decisions, not a failed business plan.
Greed set in, they say.
According to federal indictments:
Company executives loaned money to companies in which they were principal stakeholders "to pay operating expenses of these health-care providers which was to benefit Poulsen, Ayers and Parrett."
Executives used the money to support lavish lifestyles, which involved such things as Poulsen's 60-foot yacht and Parrett's 4,725-square-foot Arizona home with a five-car garage.
In some cases, National Century agreed to take over providers' debts without formally buying the accounts, which amounted to the company having millions in unsecured loans. In 2001 and 2002, National Century advanced $700 million in loans to companies without purchasing the accounts receivable.
As reserves weakened, investors and Securities Exchange Commission officials were given false financial reports that said National Century's two subsidiaries, NPF VI and NPF XII, were healthy. But money was being shifted between the two to make it appear they had adequate money in reserve, the indictment says.
The company declared bankruptcy in 2002 and shut down shortly after.
Company executives have maintained their innocence. Attorneys and U.S. District Judge Algenon L. Marbley have prepared for a long, tedious legal fight.
One of the challenges will be to make topics such as "securitization" easy for jurors to understand, said Greg Peterson, Parrett's attorney. He is concerned that complex business practices will be overly simplified and misrepresented.
"Oversimplifying things is very dangerous," Peterson said. "These are very dry issues. It's a tall order for a juror to sit there and pay attention."
On the other side, victims fear that if National Century executives emerge unscathed, that could provide an arena for fraud in an investment area that has long been considered safe, Patrick said.
"These are the types of investments that are held in mutual funds and pension funds across the country," she said. "It's important that the investments be true because pensions rely on them.
"This is a really pivotal trial."
Dispatch staff reporter Suzanne Hoholik and researchers Linda Deitch and Amy Disch contributed to this story.
Banker Darla Moore; Come on , figure this out!
Richard Rainwater and his wife, banker Darla Moore, spend part of the year at their pink Queen Anne Victorian home on Ladson Street. The billionaire Rainwater first engineered the Bass family fortune and along the way put at least $10 million in the bank for President George W. Bush when they owned the Texas Rangers baseball team. Rainwater also owns the Canyon Ranch hotels and spas.
Health care that is always there? Are you kidding me?
'Health Care That's Always There'. Really? by Eric Novack
We haven't heard from our favorite orthopedic surgeon in a while but Eric Novack is back to change the world...or at least express his annoyance at some people in it! I suspect that we'll be hearing lots of arguments like this in years to come!
The initiative that SEIU aims to get on the ballot this November to amend the Michigan Constitution:
Michigan Health Care Security Ballot Campaign - 'Health Care That's Always There'
The State Legislature shall pass laws to make sure that every Michigan resident has affordable and comprehensive health care coverage through a fair and cost-effective financing system. The Legislature is required to pass a plan that, through public or private measures, controls health care costs and provides for medically necessary preventive, primary, acute and chronic health care needs.
Will it pass? Should it pass? Who wins? Who loses?
Continue reading "'Health Care That's Always There'. Really? by Eric Novack"
Eric Novack, Policy, Policy/Politics | Permalink | Comments (1)
Technorati: Healthcare, Policy, Economics
We haven't heard from our favorite orthopedic surgeon in a while but Eric Novack is back to change the world...or at least express his annoyance at some people in it! I suspect that we'll be hearing lots of arguments like this in years to come!
The initiative that SEIU aims to get on the ballot this November to amend the Michigan Constitution:
Michigan Health Care Security Ballot Campaign - 'Health Care That's Always There'
The State Legislature shall pass laws to make sure that every Michigan resident has affordable and comprehensive health care coverage through a fair and cost-effective financing system. The Legislature is required to pass a plan that, through public or private measures, controls health care costs and provides for medically necessary preventive, primary, acute and chronic health care needs.
Will it pass? Should it pass? Who wins? Who loses?
Continue reading "'Health Care That's Always There'. Really? by Eric Novack"
Eric Novack, Policy, Policy/Politics | Permalink | Comments (1)
Technorati: Healthcare, Policy, Economics
Something new...not really......just different faces!
Health Care Fraud! - Wheelchair Fraud Out Of Texas - Another White Collar Crime Comments Ethics Speaker Chuck Gallagher
Four folks have been convicted in a program to defraud the Medicare and Medicaid program through what has become widely known as a “motorized wheelchair fraud” scheme.
Carmelita Thurman, 35, who jointly ran three durable medical equipment (DME) companies in the Houston area pleaded guilty today to conspiracy to commit health care fraud and health care fraud in a hearing before U.S. District Judge Nancy F. Atlas. Thurman is the last of four charged by indictment for their involvement in a scheme to defraud Medicare and Medicaid. Michelle Ann Ray, 40, pleaded guilty last week. Terri Ann Orozco, 44, pleaded guilty early this month and Sharon Thomas, 41, pleaded guilty in October 2007.
Thurman, Orozco and Ray, jointly ran three DME companies in Houston: Twice as Nice Medical Supply, Top of the Line Medical Supply and Heart to Heart Medical Supply. From 2002 through 2004, the three companies billed Medicare and Medicaid primarily for motorized wheelchairs and related accessories for approximately $7 million and received $3.8 million in payments on the claims, but actually delivered less expensive scooters to the beneficiaries. The beneficiaries, who could sit, stand and walk, did not meet the medical necessity requirements to receive a motorized wheelchair and mostly did not use or need the scooters delivered by defendants.
Thomas, 40, by and through her Houston company called S&L Personal Care, bought fraudulent prescriptions for motorized wheelchairs from various Houston physicians, most of whom have since been convicted of health care fraud. Thomas billed her prescriptions through the other defendants’ DME companies.
During the conspiracy, the Medicare reimbursement rate in Houston, Texas, for a K0011 motorized wheelchair and related accessories was approximately $4,700; with the Medicaid 20 percent copay, the paid amount was close to $6,000. Both a motorized wheelchair and a scooter cost approximately $800 to $1,000 wholesale.
All four defendants face a statutory maximum penalty of 10 years imprisonment and a $250,000 fine for the health care fraud conviction and the conspiracy to commit health care fraud convictions and will be subject to a court supervision following release from prison for a maximum term of three years. Sentencing hearings for each of the four defendants have been set for various dates this spring.
Outcome: As an ethics and white collar crime speaker (www.chuckgallagher.com), I often talk to groups about the Truth about Consequences. In this case, the choices made will have far reaching effects. Likely, each will face an active prison sentence along with substantial restitution. Trying to bilk the government for money that is ill gotten is just down right stupid. I know from personal experience, that the minor gains that one thinks they get from poor choices never compare to the consequences that are suffered as a result of those choices.
Four folks have been convicted in a program to defraud the Medicare and Medicaid program through what has become widely known as a “motorized wheelchair fraud” scheme.
Carmelita Thurman, 35, who jointly ran three durable medical equipment (DME) companies in the Houston area pleaded guilty today to conspiracy to commit health care fraud and health care fraud in a hearing before U.S. District Judge Nancy F. Atlas. Thurman is the last of four charged by indictment for their involvement in a scheme to defraud Medicare and Medicaid. Michelle Ann Ray, 40, pleaded guilty last week. Terri Ann Orozco, 44, pleaded guilty early this month and Sharon Thomas, 41, pleaded guilty in October 2007.
Thurman, Orozco and Ray, jointly ran three DME companies in Houston: Twice as Nice Medical Supply, Top of the Line Medical Supply and Heart to Heart Medical Supply. From 2002 through 2004, the three companies billed Medicare and Medicaid primarily for motorized wheelchairs and related accessories for approximately $7 million and received $3.8 million in payments on the claims, but actually delivered less expensive scooters to the beneficiaries. The beneficiaries, who could sit, stand and walk, did not meet the medical necessity requirements to receive a motorized wheelchair and mostly did not use or need the scooters delivered by defendants.
Thomas, 40, by and through her Houston company called S&L Personal Care, bought fraudulent prescriptions for motorized wheelchairs from various Houston physicians, most of whom have since been convicted of health care fraud. Thomas billed her prescriptions through the other defendants’ DME companies.
During the conspiracy, the Medicare reimbursement rate in Houston, Texas, for a K0011 motorized wheelchair and related accessories was approximately $4,700; with the Medicaid 20 percent copay, the paid amount was close to $6,000. Both a motorized wheelchair and a scooter cost approximately $800 to $1,000 wholesale.
All four defendants face a statutory maximum penalty of 10 years imprisonment and a $250,000 fine for the health care fraud conviction and the conspiracy to commit health care fraud convictions and will be subject to a court supervision following release from prison for a maximum term of three years. Sentencing hearings for each of the four defendants have been set for various dates this spring.
Outcome: As an ethics and white collar crime speaker (www.chuckgallagher.com), I often talk to groups about the Truth about Consequences. In this case, the choices made will have far reaching effects. Likely, each will face an active prison sentence along with substantial restitution. Trying to bilk the government for money that is ill gotten is just down right stupid. I know from personal experience, that the minor gains that one thinks they get from poor choices never compare to the consequences that are suffered as a result of those choices.
Friday, February 1, 2008
Once again, open door to FRAUD, compliments of our government
MDs May be Slow HIT Adopters - CMS and Insurers are Not!
Staff Writers
Did you know that Medicare and private health plans increasingly have been “mining” medical claims data for potential fraud – for some time now – and with the help of sophisticated computer technology?
Yes, it seems true – and such IT may be needed more than ever in 2008!
How Much Fraud?
Fraud accounts for an estimated 3% to 10% of the $2 trillion spent annually on healthcare in the U.S. Within the past few years, companies including Fair Isaac, IBM, ViPS and Ingenix, a subsidiary of UnitedHealth Group, have developed software that detects suspicious patterns in claims data.
“Spider-Web” Technology
According to the CMS, their technique is called “spider-webbing.
IOW: Find one common denominator and follow the thread.
“Red flags” indicating possible fraud include medical providers charging more than peers; providers who administer more tests or procedures per patient than peers; providers who conduct medically “unlikely” procedures; providers who bill for more expensive procedures and equipment when there are cheaper options; and patients who travel long distances for treatment.
Private Insurers to Follow CMS
For example, Aetna reported its fraud-detection software helped the insurer prevent more than $89 million in fraudulent reimbursements from being paid last year, compared with $15 million it was able to recover after fraudulent payments were already made.
Companies are able to save far more money by detecting fraud before claims are paid than recovering the money after the fact.
Conclusion
And so, what are your thoughts on this HIT initiative? Are the private insurance companies and CMS taking advantage of the slow HIT adoption of medical providers? Who is to blame, if anyone?
Please comment:
More info: www.HealthcareFinancials.com
Related info: http://www.jbpub.com/catalog/9780763733421/
Original source: USA Today 11/07/06
Staff Writers
Did you know that Medicare and private health plans increasingly have been “mining” medical claims data for potential fraud – for some time now – and with the help of sophisticated computer technology?
Yes, it seems true – and such IT may be needed more than ever in 2008!
How Much Fraud?
Fraud accounts for an estimated 3% to 10% of the $2 trillion spent annually on healthcare in the U.S. Within the past few years, companies including Fair Isaac, IBM, ViPS and Ingenix, a subsidiary of UnitedHealth Group, have developed software that detects suspicious patterns in claims data.
“Spider-Web” Technology
According to the CMS, their technique is called “spider-webbing.
IOW: Find one common denominator and follow the thread.
“Red flags” indicating possible fraud include medical providers charging more than peers; providers who administer more tests or procedures per patient than peers; providers who conduct medically “unlikely” procedures; providers who bill for more expensive procedures and equipment when there are cheaper options; and patients who travel long distances for treatment.
Private Insurers to Follow CMS
For example, Aetna reported its fraud-detection software helped the insurer prevent more than $89 million in fraudulent reimbursements from being paid last year, compared with $15 million it was able to recover after fraudulent payments were already made.
Companies are able to save far more money by detecting fraud before claims are paid than recovering the money after the fact.
Conclusion
And so, what are your thoughts on this HIT initiative? Are the private insurance companies and CMS taking advantage of the slow HIT adoption of medical providers? Who is to blame, if anyone?
Please comment:
More info: www.HealthcareFinancials.com
Related info: http://www.jbpub.com/catalog/9780763733421/
Original source: USA Today 11/07/06
Financial Fraud? Look deeper......where is Mr. Happ?
Maybe we need to 'investigate' a little deeper into what really occurred here?
Besides Lance Poulsen missing, Mr. James Happ is alos missing. One must really analyze who James Happ was and why he was placed at NCFE.
More to follow.......but in the meantime, we can read this!
By ANDREW WELSH-HUGGINS
Associated Press Writer
COLUMBUS, Ohio -- 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."
Besides Lance Poulsen missing, Mr. James Happ is alos missing. One must really analyze who James Happ was and why he was placed at NCFE.
More to follow.......but in the meantime, we can read this!
By ANDREW WELSH-HUGGINS
Associated Press Writer
COLUMBUS, Ohio -- 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."
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