Scottsdale woman files suit against National Century Financial Enterprises - East Valley Tribune: News

Scottsdale woman files suit against National Century Financial Enterprises

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Posted: Saturday, February 22, 2003 1:24 am | Updated: 2:22 pm, Thu Oct 6, 2011.

A Scottsdale woman who helped found a company whose failure could cost Arizona as much as $131 million has filed a lawsuit alleging that National Century Financial Enterprises covered up a Ponzi scheme and other practices that defrauded investors.

Rebecca Parrett filed a civil suit against National Century in Maricopa County Superior Court on Feb. 11 that outlines elaborate and secret financing schemes that amassed millions of dollars in liability for health care providers and investors nationwide.

National Century bought accounts receivable from health care providers at a discount. In return, the firm received payments from Medicare, Medicaid and other insurers.

Parrett's lawsuit alleges that:

• National Century improperly funded health care providers, racking up uncollectible debt that the company attempted to hide by transferring the debt to a separate limited liability company, National Recovery and Consulting Group.

• Reserve funds to protect investors in the event of bankruptcy were drained.

• To pay bondholders, National Century issued more bonds, which "constituted a classic Ponzi scheme," the lawsuit states.

• The company's auditors, attorneys, investment companies, bond underwriters, and reserve fund managers knew about National Century's financing practices, but allowed them to continue.

The Dublin, Ohio-based, firm declared Chapter 11 bankruptcy reorganization Nov. 18, but company officials now say the company will not survive.

The FBI and the U.S. Securities and Exchange Commission are investigating National Century.

Rebecca Baker, a member of a crisis team from Alvarez and Marsal brought in during the bankruptcy, said she would not comment on Parrett's lawsuit or any pending litigation.

Parrett is suing her former employer and many of the companies National Century did business with for fraudulent business practices that cost her at least $50 million, according to the lawsuit. Parrett owned 18 percent of the company, with stock valued at $42 million in December 2000, before the alleged fraudulent activities began.

Despite her position as a director, Parrett was unaware of the financial schemes, the lawsuit states. When she grew suspicious, executives stonewalled her inquiries.

"Whenever Parrett asked for information about the operation of these funds, she was routinely rebuked and never permitted to see the actual and outrageous state of affairs within these bond programs," court records state.

Attempts Friday to reach Parrett and her attorney, William Miller, for comment were unsuccessful.

It wasn't until fall 2002 that Parrett, who resigned in June 2001, became privy to the company's possible fraudulent activities, records indicate.

To purchase accounts receivable, National Century sold bonds to large, institutional investors, including the Arizona Treasurer's Office, which invested $131 million from municipalities and other public entities.

Parrett later learned that company executives, including CEO Lance Poulsen, were directing additional payments to health care organizations not backed by existing accounts receivable.

The payments, which were essentially loans that violated bondholder agreements, were sometimes paid to providers in which Poulsen held a controlling interest, including Doctors' Community Healthcare Corp., records indicate. The Scottsdale-based company, which filed for Chapter 11 bankruptcy reorganization, has received $280 million in improper payments from National Century, according to the lawsuit. In all, providers received $1.5 billion in loans from National Century, many of which were uncollectible.

Attempts on Friday to reach Erich Mounce, an executive vice president for Doctors' Community, for comment were unsuccessful.

As National Century's finances were deteriorating, executives began transferring funds from reserve accounts, selling more bonds and transferring uncollectible debt to a separate company, according to court records.

"All of the defendants knew that the manner in which the (National Century) funding programs were being administered constituted a fraud on the investor community," the lawsuit states.

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