National Century Financial Enterprises Inc.

Lance Poulsen’s defense team called securities industry veteran Gregory Gac, who told jurors what types of receivables National Century Financial Enterprises Inc. was allowed to purchase. The Dublin-based company bought accounts receivable from health-care providers at a discount in exchange for quick cash, then packaged those receivables into bonds that it sold to investors.Gac owns Quadrant Financial Group LLC, a Shorewood, Minn.-based firm that advises companies that want to issue asset-backed securities. Since he started the firm in 1997, Gac said he has helped clients with roughly 30 securitizations.Under questioning from John Haller, one of Poulsen’s attorneys, Gac told jurors that, based on its governing documents, National Century had broad discretion in the types of receivables it was allowed to buy.
“The documents were fairly loose on that,” Gac said.
National Century was allowed to purchase nearly any kind of receivable, Gac said, but at the same time needed to have a certain amount of collateral to back up its purchases. The government has charged Poulsen, National Century’s former CEO, with running a fraud in which the company advanced millions of dollars to companies owned by Poulsen without purchasing any receivables. The company categorized those advances as the purchase of future receivables.The government has accused Poulsen of engaging in conspiracy, money laundering and securities fraud, among others. Poulsen has denied the charges.Poulsen’s attorneys attempted to have Gac classified as an expert witness, but U.S. District Court Judge Algenon Marbley would not allow it, saying federal courts are moving away from allowing witnesses to be certified as experts. Marbley said he realized that Gac had been certified as an expert in the trial of other National Century executives in February, but because of recent rulings his hands were tied. Gac has been paid about $50,000 from Poulsen’s defense team since last year for his work as an expert witness.During the government’s cross-examination, Justice Department Attorney Nathan Dimock asked Gac to read aloud a letter that National Century’s attorneys wrote to Poulsen in October 2002. The letter, from law firm Purcell & Scott LLP, says that it was the opinion of the firm that future receivables were a violation of the firm’s governing documents.In that same letter, the attorneys noted they were also concerned that National Century may have been moving money from one account to another to hide shortfalls from bank trustees.“In summary, while Purcell & Scott does not track nor have access to the day-to-day administration of the programs ... the aforementioned bits of information cause us pause and concern,” the letter said. “If you cannot provide satisfactory explanations, in order to fulfill our ethical obligations and our responsibilities to NCFE, we will need to apprise the board of directors of our concerns.”Shortly before court adjourned for the day, the defense called Poulsen’s wife Barbara. Her testimony is expected to continue on Tuesday, followed by Poulsen himself.