From its founding in 1990 until the time of its Chapter 11 collapse in November 2002, National Century Financial Enterprises, Inc. (“NCFE”) grew into one of the largest healthcare finance companies in the United States. NCFE’s business was to finance healthcare providers by purchasing their accounts receivables payable to private insurers and public healthcare programs, issuing bonds with those accounts receivables as collateral, and then having NCFE subsidiaries purchase the receivables with borrowed funds and receivables-based securities. In 2002, it was revealed that NCFE’s business model was, in fact, an elaborate securities fraud scheme executed in large part by its owner, chairman and CEO, Lance Poulsen. In relation to this fraud and other criminal issues related to it, Poulsen and Karl Demmler, one of Poulsen’s friends, were convicted by juries and sentenced to significant sentences — 30 years for Poulsen and 7 for Demmler. In United States v. Poulsen (6th Cir. Case Nos. 08-4218 & 09-3658) (PDF) and United States v. Demmler (6th Cir. Case No. 09-3660) (PDF), the Sixth Circuit affirmed their convictions and sentences.
Evidence was presented to the Ohio juries that, from 1998 to 2001, Poulsen caused NCFE to sell $4.4 billion worth of notes to investors but, instead of investing the funds as the sale of notes indicated, transferred over $2.8 billion of those funds to privately owned companies and kept the remainder to keep NCFE solvent on paper. When Poulsen’s scheme came to light in 2002, Poulsen was forced to step down as CEO, NCFE’s Triple-A ratings were reduced to junk-bond status, NCFE was forced to seek Chapter 11 reorganization, and an estimated 275 healthcare providers were also forced into bankruptcy as a result of substantial industry-wide ripple effects. In addition to indictment for securities fraud and related offenses, Poulsen was also indicted, along with Demmler, for witness tampering as to Sherry Gibson, an NCFE employee who pleaded guilty in 2003 for conspiracy to commit securities fraud and served 4 years in prison. The juries heard evidence that Demmler attempted to cultivate his friendship with Gibson, even while she was in prison, and, in coordination with Poulsen, attempted to procure favorable testimony from her in Poulsen’s upcoming trial. Both Poulsen and Demmler were convicted of numerous offenses, for which Poulsen received a 360-month sentence for securities fraud and a 120-month concurrent sentence for witness tampering, and Demmler received an 84-month sentence for witness tampering. On appeal, writing in both cases for unanimous panels that included Judge White and Chief District Judge Maloney of the Western District of Michigan, Judge Gibbons found no errors in the convictions for either defendant and also affirmed the significant jail sentences that both received.
Those sentences, particularly that of Poulsen, join substantial jail terms that have been imposed across the country in other high-profile, white-collar cases over the last decade, such as that of Bernard Madoff (150-year sentence).