Obstruction Charged in Fraud Trial

Former CEO of Health-Financing Firm Accused of Offering to Pay Witness

The indicted former chief executive of a health-care financing company whose downfall helped push dozens of hospitals into bankruptcy was arrested yesterday on charges of offering to pay a witness to change her testimony at his coming criminal trial.

Lance K. Poulsen, who founded National Century Financial Enterprises, is awaiting a trial in February on conspiracy and securities fraud charges in connection with more than $3 billion in questionable debt his company issued before it folded five years ago.

Lawyers for Poulsen, who was taken into custody in Tampa and detained at prosecutors' request, did not return calls. Justice Department officials filed a new criminal complaint against Poulsen yesterday charging him with obstruction of justice based on evidence they obtained through phone recordings and court-approved wiretaps.

In its heyday, National Century infused billions of dollars into struggling hospitals in exchange for insurance payments that the facilities expected to receive. National Century sold bonds to generate the cash it offered to hospitals and then paid the bondholders, which included major employee retirement funds, with the insurance proceeds. The company's 2002 collapse days after FBI agents raided its Dublin, Ohio, headquarters left more than two dozen hospitals in precarious financial shape.

One of these was Greater Southeast Community Hospital in Southeast Washington. Its operator cited the troubles at National Century when it later filed for bankruptcy.

The case, which authorities likened to a massive Ponzi scheme, amounted to one of the largest investigations of a private company, securities regulators said at the time.

Poulsen, who has denied the charges, reappeared on the government's radar screen in March, when, according to court filings, he enlisted a middleman to approach a witness in his coming trial on charges that could send him to prison for 30 years. Poulsen and the middleman, Karl A. Demmler, tried to persuade the unnamed witness to change her story in exchange for thousands of dollars in cash, according to the filings. A court-appointed lawyer for Demmler did not return calls yesterday.

Over several months, federal agents surreptitiously recorded conversations between Demmler and the witness, a former National Century employee whom the men called "Mary." At a July 13 meeting, for instance, Demmler told the witness that she should "prevaricate" and have a "mental lapse," FBI Special Agent Jeffrey Williams wrote.

Poulsen and Demmler arranged for the money to flow from a company that Demmler controlled into the witness's bank account, the criminal complaint said. Poulsen wanted "Mary" to get a new lawyer whose fees he would pay using a legal insurance policy that Poulsen had obtained, according to comments he made in a Sept. 5 call recorded by the FBI.

"I don't have a problem getting the money part of that, uh, handled," Poulsen told Demmler in a Sept. 26 call, court filings said.

Poulsen apparently acted in response to the five-year statute of limitations on his first round of criminal charges, which is scheduled to expire next month, reasoning that if a critical witness against him changed her story by the deadline, he would "definitely win the white-collar case," according to his comments in an Oct. 11 call that the government recorded.

Terry Sherman, a lawyer for Sherry L. Gibson, a former National Century vice president who pleaded guilty to a conspiracy charge that she helped hide $400 million in company shortfalls, declined to comment yesterday on whether she is the witness Poulsen attempted to influence.