On March 14, 2013, Gibbs & Bruns reached a $400 million settlement with Credit Suisse Securities LLC on behalf of its clients in the National Century Enterprises (NCFE) Securities Litigation. The settlement came two weeks prior to jury selection in what was expected to be a six-week trial in the Southern District of New York before the Honorable James L. Graham, a judge in the Southern District of Ohio who presided over the consolidated multidistrict pretrial proceedings and was assigned to try the case in New York.
NCFE collapsed in 2002 in what was then the largest collapse of a AAA-rated securitization. We were initially contacted by two large NCFE noteholders, and assisted them in assembling the remaining noteholders into a cohesive group that could take action to protect their rights in the wake of NCFE’s collapse. We eventually assembled a group that held $1.6 billion of the nearly $3 billion notes outstanding. We then worked through the process necessary to permit these holders to exercise their rights under the Indenture, including their rights to give specific direction to the Indenture Trustees concerning actions that were required in the wake of NCFE’s collapse. Following the Trustees’ resignation, we filed suit against them, and against Credit Suisse, two national accounting firms, and the founders of NCFE.
In total, Gibbs & Bruns recovered $1 billion for its clients during the tenure of NCFE-related litigation. Earlier settlements were achieved with Deloitte & Touche LLP, PricewaterhouseCoopers LLP, JPMorgan, Bank One and others on behalf of the noteholders and separately on behalf of the Unencumbered Assets Trust, a litigation trust created in the bankruptcy arising from NCFE’s collapse.
The settlement we achieved from the Indenture Trustees is believed to be the largest ever paid by an indenture trustee. The facts we uncovered led the SEC to impose sanctions against JPMorgan and Bank One for their failures as indenture trustees. A copy of the SEC’s sanctions order is available here.
Our settlements against the two accounting firms rank among the top 15 accounting settlements in history. The SEC—again relying on facts we uncovered in discovery—eventually imposed sanctions against the audit partners who worked on the NCFE engagement and barred them from practicing before the SEC. Copies of the SEC’s orders imposing these sanctions against the auditors are available here and here.
Several of NCFE’s officers and employees pled guilty to fraud or other federal crimes. On March 18, 2008 five former top NCFE executives, Rebecca S. Parrett, Donald H. Ayers, Roger S. Faulkenberry, Randolph H. Speer and James E. Dierker Jr., were convicted on all charges connected with the collapse of NCFE. Charges included securities and wire fraud, conspiracy to commit fraud, and money laundering. On August 8, 2008 former CEO, Lance Poulsen, was sentenced to 10 years in prison for witness tampering and obstruction of justice, charges related to the fraud that precipitated that company collapse. On March 29, 2009, Poulsen was sentenced to 30 years in prison for securities fraud in connection with the collapse.
The Columbus Dispatch
National Century Fraud Case Closed with $400 Million Settlement