New York City's employee pension system could lose more than $89 million because of investments in bonds issued by collapsed financier National Century Financial Enterprises Inc., city officials said yesterday.

The potential loss to the five city funds is small compared with their $80 billion in assets. It adds to the growing list of municipalities, investment banks and health care providers, including Greater Southeast Community Hospital in the District, stung by the demise of the Ohio-based National Century, which declared bankruptcy in November and faces at least two federal investigations over allegations of financial fraud.

The company provided fast cash to struggling health care providers in exchange for control of their "receivables," or bills due, from insurers. It then floated bonds that were paid back with the flow of insurer payments. Investors have accused the company of misallocating some $3 billion, and one owner of the company recently claimed that founder Lance K. Poulsen was operating a Ponzi scheme, an allegation he has denied.

New York's pension plan acquired the National Century bonds through an investment program run by Citibank, which serves as the plan's custodian and lending agent, one source familiar with the transactions said.

As with many pension programs, the city arranged to loan securities to broker-dealers in exchange for collateral, most often cash, the source said. That cash was then invested in investment-grade securities -- in this case, bonds from a special-purpose entity created by National Century that filed for bankruptcy in the fall.

The city pension fund's potential loss from National Century was uncovered by Plansponsor.com, a Web site that focuses on retirement and pension issues.

Marc Kalech, spokesman for city Comptroller William C. Thompson Jr., said the pension fund owns $89.4 million in National Century bonds "in a variety of accounts." It's not clear how much the city will recover.

"Like all bondholders, we have been watching the situation closely and will aggressively pursue any possible means of recovering any losses," Kalech said.

More than 100 Arizona municipalities could lose $131 million they invested through a program managed by the state treasurer. Credit Suisse First Boston, which worked closely with National Century and underwrote the bonds, wrote off $214 million worth of the company's bonds, saying it "suffered losses as a result of what appears to be massive fraud" at National Century.