Book Proposal: Bad Company

By Christopher Zoukis

There’s a small town in Ohio.  The town’s name is Dublin, after the famous city in Ireland.  Commonly described as ‘rustic,’ which is a quaint way of saying ‘countrified’ and ‘unsophisticated,’ Dublin – the one in Ohio, not the other one – is headquarters for Wendy’s International.  Most people have heard of the hamburger chain.  What they haven’t heard of is another big firm in the same city.

National Century Financial Services.  Started in 1991, this outfit soon became the nation’s largest purchaser of hospital, physician and other health care receivables.  It works like this.  NCFE buys the accounts receivable of small hospitals, medical clinics and nursing homes.  Because of their small sizes, all of these health-care providers are having money problems.  They are desperate.

National Century steps in, giving them cash to cover their expenses so they can stay in business.  The health-care providers win because they don’t have to wait for insurance companies to pay them.  They get most of their money now, and don’t have to mess with the frustrating job of dealing with stingy insurance companies.

National Century wins because they keep a fee or percentage of any money they collect from the insurance companies.  Then NCFE puts all the accounts they bought into a kitty and sells them in the form of asset-backed securities to huge institutional investors like money market funds, or retirement funds. 

Over the course of 11 years, National Century purchased $15 billion in account receivables.  They securitized them, which means they sold bonds to raise more capital so they could buy even more receivables.  Their partner in turning receivables into securities on Wall Street was Credit Suisse First Boston. 

As one imagines, this is a risky business because it is complicated and because there is always the risk that payment will not be made.  If the insurance company doesn’t reimburse the cost of care for a patient, then the bond that was sold is pretty much worthless.  NCFE and the securities investor both lose money. 

The reality of the situation is this:  the bond is only a good investment if NCFE is good at what they do – manage risk.  So what it comes down to is trust. 

Luckily, it turned out that National Century was very, very good at it.  When it came to risk management, they were like wizards – they had the magic touch.

In fiscal year 2001, the company boasted a profit of $307 million.  Lance Poulsen, the company’s co-founder and chief executive, took home $40 million.  And he expected to make more in the following years.

Poulsen says, “We view this industry as a little risky, but the risks are predictable and something we can manage.  We provide a very much-needed sector of finance.”  He credits success to an ability to keep track of and predict the payment on every receivable, patient by patient.

National Century is privately owned, which means that Poulsen and his partners sometimes make personal investments in the company’s business ventures.  We’re not talking about stock options, which most CEOs have.  And the NCFE executives have plenty of those.  In this case, we’re talking about executives tossing their own money into the big pot of money, which is then loaned.

It’s unethical and illegal, but they did it anyway.

In the end, it turned out many of these loans were not formalized.  In other words, they were off the books.  To cover these activities up, false financial reports were given to auditors, investors and rating agencies.  They doctored the books.  Everything looked wonderful – on paper.  In fact, it looked so good that investors lined up to hand over their money. 

This fraud went on for years.

It turned into one giant Ponzi scheme.  The National Century executives were pocketing the money they made from the personal loans.  And they were pocketing the money from the bond investors.  Spending it on vacations, multi-million dollar homes, art, cars, clothing – anything and everything that defines the word lavish.

In 2002 it all came crashing down.  Lawsuits were filed in civil court.  Then the Attorney General of Ohio started looking into the problem.  Evidence was gathered, complaints were written and presented to a grand jury.  Finally charges were filed.  A 27-count superseding indictment stemming from a scheme to deceive investors about the financial health of NCFE.

Fraud, conspiracy to commit fraud, wire fraud, money laundering and securities fraud made up the bulk of the criminal charges.

The trial took place in February 2008.  It lasted for 6 weeks.  In the end, a Columbus, Ohio jury returned a guilty verdict on all 27 charges.

Donald H. Ayers, 71, of Fort Meyers, Florida, COO, and co-founder of the company, was found guilty on charges of conspiracy, securities fraud and money laundering.

Rebecca Parrett, 59, of Carefree, Arizona, secretary and treasurer of the company, was found guilty on charges of conspiracy, securities fraud, wire fraud and money laundering.

Randolph Speer, 58, of Peachtree City, Georgia, CFO, was found guilty of conspiracy, securities fraud, wire fraud and money laundering.

Roger Faulkenberry, 46, of Dublin, Ohio, was found guilty of conspiracy, securities fraud, wire fraud and money laundering.

James Dierker, 40, of Powell, Ohio, was found guilty of conspiracy and money laundering. 

Sentencing guidelines call for a minimum of 20 years and a maximum of 55 years for each count.  Ayers faces 55 years in prison.  Parrett faces 75 years in prison.  Speer faces 140 years in prison.  Faulkenberry faces 85 years in prison.  Dierker faces 65 years in prison.

Lance Poulsen is considered “guilty by association.”  Prosecutors say Poulsen orchestrated the entire scheme.  He is awaiting trial.  However, Poulsen has been very co-operative with federal prosecutors.  Which means he squealed to try and save himself.

My proposed white-collar true-crime book – Bad Company – is, I believe a very commercial and very necessary book.  It will tell the story – in very plain language – of the largest private fraud ever committed in the history of the world.  Fraud that has been described as the “Enron of Health Care financing.”

Three billion dollars were lost.  No wonder the cost of healthcare in the United States is skyrocketing. 


            Bad Company will tell the bizarre but true tale of:

            NCFE’s creative bookkeeping.

            How the executives spent their ill-gotten gains.

            How Lance Poulsen was convicted of jury tampering, and now awaits trial for conspiracy, fraud, wire fraud, and money laundering.

            How, when they learned of the indictment, the five NCFE executives planned to flee the country – to Aruba.  And how the plan was foiled when Poulsen told the feds of the plan.

            How Rebecca Parrett fled anyway, but was then arrested.

The story will be based on 6 weeks of available court transcripts, depositions, and personal interviews.  There is a wealth of documentation.

 The Competition

There is no direct competition, as the story has not yet been written. 

Similar books have been very successful.  For example, The Smartest Guys In The Room, which was the story of Enron’s rise and fall, along with its sister book Conspiracy of Fools.  Then, there is Confessions of an Economic Hit Man, which was an international bestseller and still sells well.  And Barbarians at the Gate, which was on the bestseller lists.

Readers devour these books because they are so sensational.  Everyone wants to know how and why such vast sums of money were stolen.  Simple greed?  Arrogance?  Because they could?  Or is it something else?

Bad Company will explore the $3 billion legend.