- The Washington Times - Monday, February 20, 2006

Executives for the parent company of two D.C. hospitals are defending financing deals with a firm whose top officials have been charged by the Securities and Exchange Commission with bilking investors.

Officials at Doctors Community Healthcare Corp. hastened the company’s financial collapse in 2002 by borrowing more money than the firm could afford to pay back to Ohio-based National Century Financial Enterprises (NCFE), according to a complaint in U.S. Bankruptcy Court.

Doctors Community executives, who operate Greater Southeast Community Hospital and Hadley Memorial Hospital in the District, want the complaint dismissed.

“There are no allegations that [Doctors Community executives] knew of less expensive financing sources … or that reasonable diligence would have revealed alternative financing sources,” attorneys said in court papers filed in U.S. Bankruptcy Court in the District last week.

Doctors Community emerged from a two-year bankruptcy in 2004. It collapsed in 2002 after its primary financier, NCFE, went bankrupt.

NCFE has been under investigation for years.

In December, the Securities and Exchange Commission filed a civil complaint against several top NCFE executives, citing a pattern of hiding “massive cash and collateral shortfalls” from auditors and investors that resulted in more than $1 billion in losses.

The SEC also noted “fraudulent, uncollateralized” advances from NCFE to companies that included Doctors Community.

A liquidating trust formed to recoup money for Doctors Community creditors has questioned the company’s NCFE deals, saying the money “came at too high a price.”

“The price was deepening insolvency due to excessive loans, fees, costs and interest that could never be repaid,” the trust said in legal documents.

The trust also is questioning millions of dollars it says Doctors Community spent to give executives lucrative salaries and the use of a corporate jet.

Attorneys for Doctors Community executives last week said the trust fails to claim that Doctors Community’s chief executive officer, Paul Tuft, or other company officials could have obtained financing elsewhere.

“After all, the hospital corporations owned financially-challenged hospitals operating in financially distressed communities at the time [Doctors Community] acquired them,” attorneys said in a filing.

Doctors Community attorneys also said the trust fails to claim that millions of dollars in loans and other expenses were issued for anything but business purposes.

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