A Fact Sheet on Evidence of Alleged Fraud by Corporations Seeking to Acquire D.C. General

The following report, compiled by EIR researcher Anton Chaitkin, was filed on March 8.

By the evidence given in lawsuits filed by hospitals and other of its victims, National Century Financial Enterprises (NCFE) is amassing a fortune stolen from health care institutions through classic gangster methods of embezzlement and fraud under cover of money-lending.

NCFE is part owner, financier and operations partner of the hospital-management company, Doctors Community Healthcare Corporation (DCHC), which is evidently a "front operation" for NCFE. DCHC bought Washington, D.C.'s Greater Southeast Hospital in a bankruptcy sale, and Washington's Hadley Memorial Hospital, and is preparing to take over and shut down D.C. General Hospital.

Lawsuits filed in Boston, Massachusetts, Durham, North Carolina, and Louisville, Kentucky, charge NCFE with systematic racketeering and fraud in the looting of hospitals and health care organizations. In the Boston case, DCHC chief executive Paul R. Tuft is a co-defendant in the racketeering suit.

NCFE is being sued in Kentucky for fraud and looting a healthcare company (* U.S. ex. rel. HHM vs. NCFE). United States Attorney Bill Campbell, in Kentucky, is investigating the racketeering of NCFE.

In Tennessee, NCFE is being sued for breach of contract and wrongfully diverting funds (* COLUMBIA/HCA Healthcare Corp. vs, Medshares Consolidated, Inc. and NCFE, docket number 99-410-I, Davison County Chancery Court.

At least two other such suits are reported to be under way, in other locations; details are not yet available to EIR.

How Hospitals are Looted

Boston Regional Medical Center was taken over by DCHC and NCFE, and was driven into bankruptcy. The Federal suit (* Chapter 11 bankruptcy, U.S. District Bankruptcy Court, District of Massachusetts, Eastern Division Case No. 99-10860-CJK) filed by the Stoneham, Massachusetts hospital, gives evidence of what may be a textbook case in up-to-date gangsterism.

The hospital has told the court:

DCHC first offered to buy the financially weak hospital for $50 million, causing Boston Regional to cancel bids in the $37 million range and take the hospital off the market. Then DCHC backed down and negotiated for 18 months, finally offering $25 million with the condition that NCFE "finance" the buyout and the hospital operations.

NCFE's standard deal is to buy the receivable accounts from a hospital -- the right to collect what is owed the hospital by insurance companies and patients -- paying for these accounts 97 cents per dollar of their face value. Thus, a very liberal 3% loan.... or so it appears.

But NCFE tacked on various fees and required the hospital to make deposits in various "reserve" funds. The hospital was told it could earn back a large portion of these extra charges by performing certain financial duties.

But meanwhile, DCHC and NCFE took over complete control of the hospital's money, taking all income, making all payments, including to themselves, and keeping all the records.

The resulting nightmare cost Boston Regional the following actual interest rates on NCFE's financing: 1995, at least 34%; 1996, at least 21%; 1997, at least 48%; 1999, at least 30%, each a violation of Massachusetts usury laws.

When the hospital desperately tried to change finance companies, NCFE demanded insupportable penalties, keeping the hospital in bondage.

Boston Regional was forced into bankruptcy in 1999. They determined that the DCHC/NCFE team had stolen at least $12 million to $13 million from the hospital. But they had never actually bought the hospital or provided the promised long-term financing.

Yet, NCFE shamelessly now offered to buy Boston Regional out of bankruptcy for $12.5 million -- evidently the amount of money they had stolen from that very hospital.

Boston Regional hired forensic (anti-crime) accountant James M. Cottos to probe its downfall. Cottos formerly served five years as the U.S. Treasury Department's Assistant Inspector General for Investigations, and 14 years as a Federal fraud investigator for the Health and Human Services Department, convicting hundreds.

In an affidavit supporting Boston Regional's racketeering charges against NCFE and DCHC's Paul Tuft, Cottos said NCFE stole $9 million as follows:

Using a so-called "204 adjustment" which had never been described to Boston Regional (but which Cottos discovered in an obscure code in the books), NCFE withdrew from the hospital accounts $8,870 in Sept. 1995. This was not challenged. A month later, they took $37,779, then waited 6 months. In April, 1996 -- $110,548. After 8 more months, they deducted over $500,000; a quarter million a week later; then multiple monthly withdrawals often reaching hundreds of thousands.

Cottos reported, "Based on my experience in fraud investigations, this pattern of first making small withdrawals, which could be explained as an error if challenged, and then making a larger withdrawal once the first passed, waiting a period to see if it is noticed, and then proceeding to make multiple, large withdrawals once unchallenged, is common to embezzlement and fraud schemes."

Other millions were reportedly stolen by simply not crediting the hospital with what it was due, and diverting the money into NCFE accounts.

Cottos says he discovered NCFE has used the very same methods to misappropriate funds in other institutions whose cases he has also investigated.

The bankrupted Massachusetts hospital is asking the U.S. Court to seize NCFE's bank accounts before the money disappears.

They Take It All

The North Carolina-based PhyAmerica Physician Group, which manages emergency rooms for about 270 U.S. hospitals, was similarly looted and wrecked. A class-action Federal RICO suit charges NCFE with "a pattern of racketeering," filing false reports with the Securities and Exchange Commission, and diverting millions from the health-care company, while conspiring with PhyAmerica's chief executive to bail him out of failure by letting him steal millions.

Stockholders in PhyAmerica [* Charles R. Bosco & Michael D. McGee as a class action vs. on behalf of similarly situated shareholders, in the Middle District of North Carolina] vs. Steven M. Scott and NCFE and its CEO Lance K. Poulsen] complain as follows:

When PhyAmerica sank financially under its founder and chief executive, Steven Scott, the board fired him. But Scott took back control in a proxy fight, promising to sell the whole company, so as to benefit stockholders.

But Scott brought in NCFE and began selling off subsidiaries of the company to firms he personally controlled, with his personal transactions financed by NCFE. These subsidiaries then would miraculously increase in reported net worth and reported profits, indicating they had earlier been undervalued on the parent-company's books so they could be ripped off.

In return, Scott blinded the company's accounting and financial departments for NCFE, which got total, physical control over PhyAmerica's money flows. It was thus arranged that the company could not successfully recoup its portion of NCFE's notorious "extra" fees and reserves.

The suit charges that the NCFE team filed seven false quarterly and two false yearly reports to the U.S. Securities and Exchange Commission and to the PhyAmerica stockholders.

NCFE's man Scott acquired 52% of the stock shares, then ordered a prohibition against anyone else acquiring 5% or more of the shares. The share value fell from about $8 to less than 25c, was delisted by the New York Stock Exchange, and became worthless in that it was virtually impossible to trade.

As with the Boston case, NCFE kept its victim tightly tied up. A PhyAmerica executive, former chief financial officer Charles Kuoni, contacted the Bank of America about offering financing as a less costly alternative to NCFE.

Based on the records the NCFE team allowed Bank of America to see, Bank of America could not account for $30 million in receivables collected by NCFE and refused to get involved. The NCFE team then forced the Kuoni out of PhyAmerica.

When stockholder Michael D. McGee proposed to arrange less costly financing, NCFE chief executive Poulsen threatened McGee with legal action. McGee launched an investigation of the company's downfall, breaking open the case and leading to the huge racketeering suit.

National Century Financial Enterprises is officially headquartered in Dublin, Ohio, a suburb of Columbus. The misnamed Doctors Community Healthcare Corporation is based in Scottsdale, Arizona, where NCFE also has offices. Both companies are privately held and make no public reports on their finances.

In response to citizen protests against turning over three of Washington's hospitals to these outfits charged with wholesale looting, the District of Columbia Financial Control Board tells the news media that they have "checked out DCHC and Wall Street gives them an excellent rating."

Yet as this is written, no account of the racketeering cases described here have appeared in the daily news media.

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