L=DHONIN i

CLERKUNITED STATES DISTRICT COURT. 2004 JAN

21P 4. 44

SOUTHERN DISTRICT OF OHIOEASTERN DIVISION

IN RE: NATIONAL CENTURY FINANCIA LENTERPRISES , INC . FINANCIALINVESTMENT LITIGATION

UNITED STATES DISTRICT COURTMIDDLE DISTRICT OF FLORID A

MICHAEL MAHONEY, LOUIS JANSSEN and

LARRY R. WHITE on behalf of themselves,

and all others similarly situated ,

Plaintiffs,

V.

JOHN F . ANDREWS, FRANK P .

MAGLIOCHETTI, DONALD H. AYERS,AYERS LLC, SUZANNE HOSCH, GEORGE A .KUSELIAS, SAM J . W. ROMEO, ALBERTMARSTON, CEDRIC JOHNSON, LANCE K .POULSEN, BARBARA L . POULSEN,REBECCA S . PARRETT, CHEYENNE-

BLAZE, LLC, J .P. MORGAN CHASE & CO .,THE BEACON GROUP, LLC, THE BEACONGROUP III FOCUS VALUE FUND, L .P .,MITCHELL J . STEIN, TSI TECHNOLOGIESAND HOLDINGS, LLC (a/k/a "Swab Financial,LLC), SWAB FINANCIAL LLC and R. J . GOLD& COMPANY, P .C.,

Defendants .

LAST. Lt's, 1: J. IiifJ SCase No . 2:03-and-1565Judge GrahamMag. Judge Abel FILED

TIME :

JAN 2 7 2004

JAMES BONINI, ClerkCOLUMBUS, OHI O

Case No . 3 :03CV -467-J-25-TEM

SECOND AMENDED CLASS ACTION COMPLAINT

Plaintiffs make the following allegations, except as to allegations specifically pertaining t o

them, based upon the investigation undertaken by their counsel, which included analysis ofpubl is ly-

available news articles and reports, the review of relevant testimony and court pleadings, review o f

relevant electronic mail, public filings, press releases and other matters of public record, and

consultation with a forensic accountant .

NATURE OF THE ACTION

This is a class action on behalf of all purchasers of the securities of e-MedSoft .com

("e-MedSoft" or the "Company") between December 6, 2000 and February 11, 2002, inclusive, (th e

"Class Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the

"Exchange Act") .

2. E-MedSott announced on February 9, 2000 that it had entered into an alliance wit h

National Century Financial Enterprise , Inc . ("NCFE"), a company that purchased medical account s

receivable from health care providers and securitized them, that is, issued notes and bonds t o

institutional investors whose principal and interest was backed by the cash flow from the account s

receivable . According to e-MedSoft, the relationship with NCFE was an important one .

Unfortunately for the investing public, however, the heart of the relationship was a sophisticated

financial Ponzi scheme, which ultimately drove both companies into bankruptcy and left e-MedSof t

investors with worthless stock .

3 . NCFE controlled e-MedSoft through its substantial stock ownership which i t

maintained at all relevant times. In effect, NCFE used e-MedSoft as its personal "piggy bank ."

NCFE accomplished this by advancing funds to e-MedSoft in payment for accounts receivable whic h

the Company had assigned to NCFE . NCFE charges e-MedSoft exorbitant interest on thes e

receivables -- 24% to 25% -- and thus was able to suck money out of e-MedSoft at rates much highe r

than the Company could have borrowed elsewhere. Frequently , however, NCFE "overfunded" th e

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Company's accounts receivable, that is, it advanced money to e-MedSoft based on "phantom" o r

non-existent accounts receivable . NCFE recorded these "future" or phantom accounts receivabl e

on its own financial statements and, in turn, used them as a basis for issuing new notes and bond s

to institutional bond investors who paid cash to NCFE for the bonds .

4. Defendant Rebecca S. Parrett ("Parrett"), a officer and director of NCFE, describe d

this Ponzi scheme herself in a lawsuit she brought against many of the same defendants named here ,

including the principals of NCFE, Lance and Barbara Poulsen, Donald H . Ayers, and J . P. Morgan

Chase & Co. According to Parrett, NCFE overfunded e-MedSoft's accounts receivable b y

approximately $ 100 million. (Parrett Complaint, para. 68). Defendant Frank P. Magliochetti

("Magliochetti") also testified to NCFE's overfunding of e-MedSoft 's accounts receivable, which

he called "pro fonna funding . "

5. Ultimately NCFE' s Ponzi scheme was detected after it declared bankruptcy an d

investigations by criminal prosecutors in this District and the Securities and Exchange Commissio n

("SEC") ensued . As described below, NCFE used its substantial and controlling share interest i n

e-MedSoft to orchestrate several acquisitions of undisclosed related parties to give the Company th e

appearance of progress and growth .

6. On December 6, 2000, the beginning ofthe Class Period, the Company issued a pres s

release announcing that it had been "selected" by Chartwell Diversified Services, Inc . ("Chartwell")

to build a customized healthcare portal solution. The press release represented that the contract wa s

secured through the Company's joint venture with NCFE . The Company's stock price rose on th e

news of the Chartwell contract . NCFE and several of its affiliates, were principal shareholders o f

e-MedSoft and Chartwell . Defendants Lance Poulsen, his wife Barbara Poulsen, Donald H . Ayers

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and Rebecca Parre tt, through Thor Capital Holdings, LLC ("Thor Capital ") obtained an 88% interes t

in Chartwell in August 2000 . E-MedSoft, however, did not disclose of the following material

related-party facts : Defendant Ayers was a member of e-MedSoft's board and a significant Chartwel l

shareholder; several NCFE affiliates (including Ayers who owned 25%ofNCFE through July 2001)

were also significant e-MedSoft shareholders, and Chartwell shareholders . Much later in public

filings, the Company admitted that these NCFE affiliates represented the largest related group of

stockholders and had the "ability to influence the election of directors and other important corporate

transactions requiring shareholder approval ." (Form 10-K for the fiscal year ended March 31, 2001 ,

filed August 1, 2001) .

7. Thereafter, on May 3, 2001, the Company announced it had executed a letter of inten t

to acquire Chartwell, a company run by defendant Magliochetti . According to the press release ,

Chartwell and its partnerships had "profitably generated annual revenues ofmore than $150 million ."

This press release also stated that Magliochetti would join the combined company as Co-CEO and

Vice-Chairman . A few weeks later, on May 21, 2001, defendant Andrews was quoted in The

Florida-Times Union as statingthat "Chartwell is a profitable company with annual earnings before

interest, depreciation, taxes and amortization of about $7 million to $15 million ."

8. No disclosure was ever made of the related parties, nor was there any basis for th e

statements about Chartwell's profitability . Several otherpress releases were issued during the Clas s

Period regarding Chartwell's profitability and business prospects , as set forth below. On August 1 ,

2001, the Company first disclosed that only defendant Donald H . Ayers ("Ayers") had an interes t

in Chartwell . Not until August 21, 2001, in the Company's Form 8-K, however, did the Compan y

disclose that "Chartwel I's principal shareholders are also p rincipal shareholders of . . . NCFE." (The

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Company's proxy statement for its annual shareholders ' meeting to be held on December 27, 2001 ,

disclosed that the following related pa rties received payment for their Chartwell shares in the merger:

Lance & Barbara Poulsen , Ayers, LLC, Cheyenne-Blaze, LLC and Frank P. Magliochetti, Jr . )

The Company continued to issue positive press releases about its plan to acquire two

other companies , Addus Healthcare , Inc . ("Addus") and Tender Loving Care, Inc . ("Tender Loving

Care"). NCFE controlled the Company's selection of these acquisition candidates . At the time the

Company made these statements, however, it did not have the financial means to acquire them .

10 . As detailed below, the Company fraudulently obtained $70 million in financing from

Private Investment Banking Group ("PIBL") to help pay for these planned acquisitions, a schem e

which ultimately caused the Company's auditor to resign . The Company agreed in writing to pledge

its medical accounts receivable as collateral to repay the principal and interest on convertibl e

debentures the Company issued in exchange for the cash financing PIBL provided . (The Company

issued the debentures to Societe Financiere du Seujet , Ltd. ("SFSL"), a Swiss company that acted

as a broker in finding a source of financing -- PIBL -- for the Company . )

11 . After PIBL had advanced $70 million to the Company, PIBL received a copy o f

financing documents that the Company inadvertently or mistakenly faxed to PIBL, showing that th e

Company had deleted the key paragraphs of the debentures setting forth the Company's obligatio n

to collateralize the debentures with its medical accounts receivable . PIBL also noticed that P1B L

directors' names had been forged . The forged documents had apparently been used to deceive th e

Company 's auditor, KPMG LLP ("KPMG") about the medical accounts receivable, which th e

Company had already pledged to NCFE, not to PIBL, as agreed .

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12. Although the Company conducted an "independent" investigation ofthese allegations,

which PIBL asserted in a complaint against the Company for fraud and breach of contract, KPM G

nevertheless refused to certify the Company's fiscal-year end March 31, 2002 financial statements

and resigned on July 26, 2002 . A few days later, on August 1, 2002, defendant George Kuselias, e-

MedSoft's CFO, also resigned or was forced to leave the Company .

13 . The Company's positive statements about Chartwell proved illusory as well . After

the merger, the Company twice restated Chartwell's financial statements in October and Novembe r

2001 .

14. Meanwhile, the Company's insiders dumped millions of dollars of their Compan y

stock. Controlling shareholders TSI Technologies and Holdings, LLC ("TSI"), SWAB Financial ,

LLC ("SWAB Financial") and Mitchell Stein , entered into a series of secret agreements during 200 0

to 2001 to sell up to 10 million shares of eMedSoft shares, described below . Defendants Lanc e

Poulsen and Mitchell Stein (operating through his company TSI) dumped millions of shares of stoc k

between November 2001 and January 2002, just before the second restatement was announced i n

a Form 8-K filing on February 11, 2002, the end of the Class Period. With that announcement, th e

Company's stock dropped and continued a downward slide thereafter as the Company spiralled into

bankruptcy .

15 . The Company's stock was delisted from the AMEX on July 15, 2002 . On July 26 ,

2002, as stated above , KPMG resigned . On November 27, 2002, the Company filed for bankruptcy ;

it is not named as a defendant herein . NCFE -- a controlling person of e-MedSoft -- also filed fo r

bankruptcy protection in November 2002 . According to a witness cooperating with th e

Government's criminal investigation of NCFE and others, NCFE has operated as a Ponzi schem e

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to defraud thousands of investors nationwide . The SEC has also brought suit, alleging that NCF E

"senior officials . . . defrauded investors who invested billions of dollars in secu rities issued bywholly

owned subsidiaries of [NCFE] ." ( See Exs. B, C & D, annexed hereto .) As a result, the usua l

formalities of corporate separateness insulating NCFE's owners and officers should be disregarde d

and liability imposed for the fraud on e-MedSoft shareholders alleged herein .

16. On August 21, 2003, the Company disclosed that it had received a subpoena as par t

of a formal inquiry by the SEC . The subpoena requested items relating to the Company's accountin g

and auditing matters, and relationships with current and former financing sources and analysts ,

among other things .

JURISDICTION AND VENUE

17. This Court has jurisdiction over the subject matter of this action pursuant to 28 U .S .C .

§§1331, 1337 and 1367 and Section 27 of the Exchange Act (15 U .S.C. § 78aa) .

18 . This action arises under Sections 10(b) and 20(a) of the Exchange Act (15 U.S .C .

§ § 78j(b) and 78t(a)) and Rule lOb-5(a), (b) and (c), promulgated thereunder (17 C.F .R . §

240 .1 Ob-5) .

19. Venue is proper in this District pursuant to Section 27 of the Exchange Act (15 U.S.C .

§ 78aa) and 28 U .S .C . § 1391( b) and ( c) . Substantial acts in furtherance of the alleged fraud and/o r

its effects have occurred within this District including the preparation of the false and misleadin g

press releases and financial statements alleged herein, and later moved its headquarters t o

Massachusetts at the end of 2001 . The Judicial Panel on Multi-District Litigation transferred thi s

case to this District because certain officers and directors of NCFE live in this District and NCFE

is headquartered here .

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20 . In connection with the acts and omissions alleged in this complaint, defendants ,

directly or indirectly, used the means and instrumentalities of interstate commerce, including, bu t

not limited to, the mails, interstate telephone communications, and the facilities of the nationa l

securities markets

PARTIE S

21 . Plaintiffs purchased e-MedSoft common stock during the Class Period, as set fort h

in the certifications filed with the original complaint and which are incorporated herein by reference,

and were damaged thereby . Proposed lead plaintiffs, Laurie & Gary Davis, Glenn & Donna Schrade r

and Larry R . White, timely moved for appointment as lead plaintiffs and approval of their choice o f

lead counsel on August 18, 2003 in the Middle District of Florida prior to transfer to this Court b y

the MDL panel . Their certifications are filed with their lead plaintiff motion and are incorporate d

herein by reference. Proposed lead plaintiffs also moved at that time to consolidate this action wit h

the related and later filed action , John P . Houlihan v. John F . Andrews, et at ., Case No . #:03-65 6

(M.D. Fla .), which is also now before this Court.

22. The defendants, at all times relevant to this action, served in the capacities listed

below :

Name Position

John F . Andrews Chairman and Chief Executive Officer of e -MedSoft(1999 to May 2001 ; Co-CEO from May 2001 to hisresignation on August 6, 2001) .

Frank P . Magliochetti Chairman and Chief Executive Officer of e-MedSoft(August 6, 2001 to present ; Co-CEO and Vice-Chairman May 2001 to August 6, 2001) ; formerlyChief Executive Officer and 10% owner of Chartwell .

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Donald H. Ayers A member of e-MedSoft 's Board of Directors, a

significant shareholder of Chartwell, Vice Chairman,Chief Operating Officer and a director of NCFE, a

principal shareholder of e-MedSoft .

Ayers LLC Managed by defendant Donald H. Ayers, the soletrustee of a trust which is the sole member of Ayers

LLC . During the class period , Ayers LLC was the

alter ego of Donald H . Ayers .

Suzanne Hosch Chief Accounting Officer .

George A. Kuselias Chief Financial Officer until his resignation onAugust 1, 2002

Sam J .W . Romeo Director; signed the Company's August 1, 2001 Form

10-K (for period ended 3/31/01) .

Albert Marston Director; signed the Company's August 1, 2001 Form

10-K (for period ended 3/31/01) .

Cedric Johnson Director; signed the Company's August 1, 2001 Form10-K (for period ended 3131/01) .

Lance K. Poulsen President and Chairman of NCFE ; shareholder ofCha rtwell ; controlling person as alleged below .

Barbara L. Poulsen A Director of NCFE, wife of Lance K . Poulsen, ownerof Chartwell, and a controlling shareholder as allegedbelow; upon information and belief, Barbara Poulsenmaintained an offshore account through which shetraded securities .

Rebecca S . Parrett Principal shareholder ofChartwell and Vice Chairman,

Secretary and Treasurer of NCFE, and a controllingperson of e-MedSoft . Parrett and Donald H. Ayerswere previously husband and wife, upon informationand belief.

Cheyenne-Blaze, LLC Alter ego of Rebecca S . Parrett ; managed by Parrett,the sole trustee of the trust which is the sole member ofCheyenne-Blaze, a controlling shareholder of the

Company .

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J .P. Morgan Chase & Co. A Delaware corporation that directly or indirectly

(through the Beacon defendants described below)owned approximately 20% of the common stock ofNCFE and which was represented by two directors on

NCFE's board . NCFE was a controlling person of theCompany under the federal securities laws .

The Beacon Group, LLC A Delaware limited partnership through whichdefendant J .P. Morgan Chase & Co . (its owner)

directly or indirectly controlled NCFE , which in turn,was a controlling person of the Company.

The Beacon Group III A Delaware limited partnership that became the

Focus Value Fund , L.P. wholly-owned subsidiary ofJ .P . Morgan Chase & Co .in 2000 and was the alter ego of J .P . Morgan Chase &Co. through The Beacon Group 11I Focus Value Fund,L.P . and/or The Beacon Group , LLC, J . P . MorganChase & Co. owned 20% of the common stock ofNCFE .

Mitchell J. Stein Founder of the Company and a board member in 1999

to 2000; owner and controlling person of TSITechnologies and Holdings, LLC (later renamed toSWAB Financial, LLC), HealthMed, Inc ., SangaInternational (prior to its' bankruptcy) .

TSI Technologies and Owner of 20 .76% of the Company's stock during the

Holdings, LLC relevant period and controlling person ; controlled by

(a/k/a "SWAB Financial LLC") defendant Mitchell Stein ; TSI Technologies and

Holdings, LLC was later renamed "SWAB Financial,LLC," according to the first amended complaint filedby SWAB Financial, LLC as plaintiff in SWAB

Financial . LLC v. Daniel Feldman et at ., Civil No . BC

280610 (Calif Superior Court, LA County) (filed

4/14/02) .

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SWAB Financial, LLC Owner of 20.76% of the Company's stock during the

relevant period and a controlling person ; controlled bydefendant Mitchell Stein ; previously named TSITechnologies and Holdings, LLC until June 28, 2001

when a name change to SWAB Financial, LLC wasinstituted. SWAB Financial, LLC entered into anagreement with San Diego Asset Management tosystematically and surreptitiously sell 10 million shares

of e-MedSoft common stock, as alleged below .

R. J . Gold & Company, P .C. Chartwell 's auditors ; audited Chartwell's financialstatements which were included in financial statementsthe Company presented in public filings with theconsent of R . J . Gold & Company, P .C .

23 . Defendants (except R .J . Gold &,Company, P .C .), as senior officers and/or director s

or significant shareholders, were controlling persons of the Company . Each exercised their powe r

and in fluence to cause the Company to engage in the fraudulent scheme alleged herein .

24 . According to the Company's report on Form 10-K filed on November 11, 2002 (fo r

the fiscal year ended 3/31/02), NCFE and its affiliates beneficially own approximately 33% of the

Company's common stock during the Class Period, "and such represents the largest related grou p

of stockholders [the Company has] . Accordingly. h could have an abili to influence the

election of directors and other important corporate transactions requiring stockholder approval .

In addition, Donald H . Ayers, a principal of NCFE, is also one of our directors ." Lance K. Paulsen

was president ofNCFE, a controlling shareholder ofe-MedSoft . NCFE exercised significant control

over the Company because of its stock ownership and because it controlled the financing to fund th e

Company's operations and formed a joint venture with e-MedSoft as described in the Company' s

December 6, 2000 press release .

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25 . NCFE filed for bankruptcy in November 2002 and, accordingly, is not named as a

defendant herein . By virtue of their stock ownership and/or positions as officers and directors of

NCFE, defendant Poulsen and the other NCFE affiliates, Donald Ayers, Ayers LLC, Parrett an d

Barbara Poulsen (Lance Poulsen's wife), J .P. Morgan Chase & Co., The Beacon Group, LLC an d

The Beacon Group 111 Focus Value Fund, L.P. are controlling persons of NCFE . Their ownership

of NCFE ( according to the Parrett complaint discussed below) was as follows : Parrett (18%) ; the

Poulsens (38%); Ayers (18%); J .P . Morgan Chase/Beacon Group (20%). In addition , defendant

Lance K . Poulsen admitted in paragraph 23 of his answer dated January 23, 2002 in Nationa l

Medical Care Inc ., et al . v. Home Medical Care of America, Inc ., et al ., Civil No. 00-1225-J (Mass .

Superior Court), that he, Donald Ayers and Rebecca Parrett "are or were officers of NCFE . "

26. Lance Poulsen and several of the other NCFE affiliates were also significant e-

MedSoft stockholders, including Barbara Poulsen, Donald Ayers, Ayers, LLC, Parrett and Cheyenne-

Blaze , LLC. According to the Company's filings, the NCFE affiliates represented the "largest group

of related stockholders" and thus had the "ability to influence the election of directors and othe r

important corporate transactions requiring stockholder approval ." During the Class Period, Lance

Paulsen personally owned at least 12,056,500 shares of common stock or 8.11% of e-MedSoft . A s

of August 16, 2001, defendant Donald Ayers personally owned 1,400,000 shares of e-MedSoft

common stock .

27 . Each of the defendants is liable as a participant in a scheme to defraud e-MedSoft

common stock purchasers, by disseminating materially false and misleading statements an d

concealing material adverse facts and/or by possessing controlling person authority . Defendants

deceived the investing public regarding e-MedSoft' s business , its finances and the intrinsic value of

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the Company's common stock, and caused plaintiffs and other Class members to purchase th e

Company's common stock at artificially inflated prices .

PLAINTIFFS' CLASS ACTION ALLEGATION S

28 . Plaintiffs bring this action as a class action pursuant to Rule 23(a) and (b)(3), Fed .

R. Civ. P., on behalf of a Class, consisting of all persons who purchased c-MedSoft (or Me d

Diversified) securities between December 6, 2000 and February 11, 2002, inclusive (the "Clas s

Period"), and who were damaged thereby . Excluded from the Class are defendants, members of the

immediate family of each of the Individual Defendants, and the present and former directors an d

officers of e-MedSoft (or Med Diversified), or any entity in which any excluded person has a

controlling interest, and the legal representatives, heirs, successors and assigns of any exclude d

person.

29. The members of the Class are so numerous that joinder of all members i s

impracticable . While the exact number of Class members is unknown to plaintiffs at this time an d

can only be ascertained through appropriate discovery, plaintiffs believe that there are thousands of

members of the Class located throughout the United States . As of June 12, 2001, there were

reportedly more than 80 million shares of e-MedSoft common stock outstanding . Throughout th e

Class Period, the Company 's common stock was actively traded on the American Stock Exchang e

(an open and efficient market) under the symbol "MED ." It currently trades in the Pink Sheets under

the symbol "MDDVQ .PK." Record owners and other Class members maybe identified from record s

maintained by the Company and/or its transfer agents and may be notified of the pendency of thi s

action by mail, using a form of notice similar to that customarily used in securities class actions .

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30. Plaintiffs ' claims are typical of the claims of the other members of the Class as al l

members of the Class were similarly affected by defendants ' wrongful conduct in violation of federa l

law that is complained of herein .

31 . Plaintiffs will fairly and adequately protect the interests of the members of the Clas s

and have retained counsel competent and experienced in class and securities litigation .

32. Common questions of law and fact exist as to all members of the Class an d

predominate over any questions solely affecting individual members of the Class . Among the

questions of law and fact common to the Class are :

a . whether the federal securities laws were violated by defendants' acts an d

omissions as alleged herein ;

b . whether defendants participated in and pursued the common course of conduc t

complained of herein ;

c. whether documents, press releases, and other statements disseminated to th e

investing public and the Company's shareholders during the Class Period misrepresented materia l

facts about the business, finances, financial condition and prospects of the Company ;

d. whether statements made by defendants to the investing public during th e

Class Period misrepresented and/oromitted to disclose material facts about the Company's business ,

finances, value, performance and prospects ;

e . whether the market price of e-MedSoft common stock during the Class Perio d

was artificially inflated due to the material misrepresentations and failures to correct the materia l

misrepresentations complained of herein ; and

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f, the extent to which the members of the Class have sustained damages and th e

proper measure of damages .

33 . A class action is superior to all other available methods for the fair and efficien t

adjudication of this controversy since joinder of all members is impracticable . Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden o f

individual litigation make it impossible for members of the Class to individually redress the wrong s

done to them. There will be no difficulty in the management of this suit as a class action .

SUBSTANTIVE ALLEGATION S

Background to the Class Period

34. E-MedSoft traces its roots back to a "blank check" company, High Hopes, Inc ., a

Nevada company formed on August 25, 1986 . High Hopes, Inc . changed its name to Medtech, .Inc .

in January 1999, and was later merged with Sanga International, a company based in California an d

owned by defendants Mitchell Stein and John Andrews . In January .1999, Sanga Internationa l

changed its name to e-MedSoft .com . E-MedSoft's public filings show that in 1999, e-MedSoft wa s

owned by Sanga Inte rnational, TS1(a company that was formerly known as Sanga e -Health LLC) ,

Stein and Andrews. (HealthMed, Inc ., another company owned and controlled by defendant Stein ,

owned a controlling interest in TSI) .

35. On January 7, 1999, e-MedSoft acquired certain rights to a Java-based, online

healthcare management system from TS1(formerly known as Sanga e-Health, LLC), in exchange

for 41 .417 million shares of e-MedSoft stock . In connection with this transaction, the Compan y

completed a 5 for 1 forward stock split and as a finder's fee, issued 2,553,144 restricted shares and

1,035,429 warrants to purchase restricted shares of common stock at an exercise price of $0.25 per

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share over 5 years . As a result of these transactions, TSI owned approximately 80% of the

outstanding shares . John F . Andrews was CEO of Sanga International, Inc . at the time and became

chairman and CEO of e-MedSoft when the company acquired the software. Defendant Stein became

a member of the board of e-MedSoft on September 1, 1999 as an ex-officio member representative

ofTSI, aprincipal stockholder of e-MedSoft.com, according to the Company's June 30, 2000 Form

10-KSB . According to that filing, Stein was the Chairman of TSI . Because Andrews worked out

of Jacksonville Beach, Florida, e-MedSoft officially moved its headquarters from California to

Jacksonville in 1999 .

36 . In March 1999, defendant Magliochetti met defendant Lance Poulsen . In addition,

defendant Donald H . Ayers made a $250,000 loan to the Company on March 19, 1999 and received

1,000,000 shares of the Company as consideration for the loan .

Prior Undisclosed Related-Party Interest: HMA

37. On July 9, 1999, e-MedSoft issued a press release announcing that "Home Medica l

of America ("HMA"), the nation's largest privately-held provider of home healthcare services, has

selected e-MedSoft .com to Web-enable selected legacy mainframe applications in connection with

the significant base of physicians on the e-MedSoft .com network ." According to defendant John

Andrews, then Chairman and CEO of e-MedSoft .com, "e-MedSoft.com is pleased to be associated

with such a prestigious provider of home health services ." Defendants, however, did not disclose

that HMA was a company partially owned and controlled Ayers, among others . As alleged above,

Ayers had obtained 1,000,000 shares in e-MedSoft on March 19, 1999 in consideration for a

$7 10, 000 loan to e-M ed S oft .

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38. On January 11, 2000, the Com pany announced that it had begun trading on the

American Stock Exchange under the symbol "MED ."

E-MedSoft's Relationship with NCFE

39. On February 2, 2000, the Company entered into a seven-year Preferred Provide r

Agreement with NCFE to provide it services and software solutions and to have access to NCFE' s

clients . In return, the Company issued 9 .5 million shares of stock to NCFE, and NCFE cancelle d

approximately $4 .8 million of debt owed to it by e-MedSoft . NCFE held half the stock (or 4,750,000

shares) in its own name ; the other half (4,750,000) NCFE assigned to Healthcare Capital, LLC, a

company owned and controlled by NCFE. The 9 . 5 million shares that NCFE received then had a

market value of $113 million, according to the Company's March 31, 2001 Form I 0-K, filed Augus t

1, 2001 .

40. On February 9, 2000, the Company and NCFE issued a joint press release announcing

that the Company and NCFE had finalized a "joint venture valued at more than $500 million to e-

MedSoft.com over the next seven years ." The press release stated that the two companies woul d

work together to create a website that health-care providers could use to buy an "entire suite o f

products and services ." E-MedSoft was to provide the suite of products and services to support th e

site, and NCFE would provide the "healthcare financing options by offering its high grade financia l

products ." "`This joint venture is groundbreaking for the future of healthcare,' stated Donald H .

Ayers, co-founder and vice-chairman of NCFE." According to Ayers, "The ability to rely upon a

proven system and technology, in conjunction with a reliable leader in the area of healthcar e

securitizations and ultimate funding, is essential to the provider's capability to survive in today' s

dynamic healthcare market."

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41 . On June 8, 2000, the Company and NC FE announced that e-MedSoft had complete d

Phase I of the NCFE/e-MedSoft "Master Portal ." According to the press release, health-care

providers for the first time would be able to gain electronic access through the Master Portal to th e

"network of business and financial resources " of NCFE and e-MedSoft.com . "These capabilities ,

together with the e-MedSoft-offered Medical Business Applications, create for the companies a

Web-based, comprehensive `money' distribution network where clients -- from hospitals and clinic s

to home health agencies -- can access funding or payment for their claims in a totally electroni c

environment ." According to Lance Poulsen, the "mass rollout" of the project would have a

substantial impact on both companies' core businesses . Andrews, then the Company's Chairma n

and CEO, said : "This implementation will continue to enhance NCFE' s position and stature in the

industry . "

42 . In August 2000, as alleged below, the NCFE related p rincipals , Lance and Barbara

Poulsen, Donald H. Ayers and Rebecca S . Parrett purchased a substantial portion of Chartwell, a

privately-held health care company run and managed by Magliochetti .

The Class Period Begin s

43 . The Class Period begins on December 6, 2000 . On that date, e-MedSoft issued a

press release announcing that it had been selected by Chartwell to build a customized healthcare

portal solution :

JACKSONVILLE BEACH, Fla . -- Dec . 6, 2000 -- e-MedSoft .com(AMEX: MED) . . . today announced that the Company has beenselected by Chartwell Diversified Services , Inc., a leader in therapidly growing home care healthcare industry, to build a customizedhealthcare po rtal solution .

The portal will link Chartwell's network of home healthcare offices .

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Frank Magliochetti, chief executive officer ofChartwell, stated : This

portal will serve as an integral point of contact for our employees,contractors, physicians and patients, providing the foundation for allof our home healthcare applications . '

Commenting further, Magliochetti said : `Since theportal will be such

an impo rtant tool in our management infrastructure, it was essentialchoose a company with proven ca abilities in this area, which

y we decide to go with a-M Sot. a-MedSo t has provenis whdeli n and implementation abilities andtheir solutions gry Fide the

our

John F. Andrews, e-MedSoft .com chairman and chief executive

officer, stated : `We are excited to continue the momentum in theconnectivity segment of our business by securing this contract withChartwell th rough our joint venture with NCFE, the leading provider

of healthcare accounts receivable financing in the nation. This

marked the first step in what we expect to be an ongoing relationship

with Chartwell, eventually leading to implementation of e-MedSoft's

full suite of e-healthcare business and clinical products and services . '

`Additionally this contract demonstrates both the strengths of ourtechnical capabilities as well as reinforces our expanded relationshipwith NCFE to provide Web network solutions to benefit healthcare

customers. Our joint venture arrangement provides a significantdistribution channel through which to market our innovative solutionsto NCFE's customer base, including more than 2,000 healthcare

clients representing nearly 20,000 physicians . '

44. E-MedSoft's stock price rose on the December 6, 2000 news announcement .

The foregoing statements, however, were false and misleading because Andrews and the other

defendants did not disclose that Chartwell, a privately held company, was owned by several NCFE

affiliates, including Lance Poulsen and Ayers . The press release gave the misleading impression that

Chartwel I chose e-MedSoft to perform a contract without anyreference to the fact that Chartwell was

owned by the same NCFE related parties group that owned both Chartwell and e-MedSoft . As set

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forth below, NCFE became an owner of Chartwell in August 2000, and upon information and belief,

acquired 88% of Chartwell . NCFE also owned 9 .5 million shares ofNCFE as of February 2000, or

approximately 14% of e-MedSoft at that time . (NCFE's ownership in e-MedSoft increased to over

50 million shares when the announced Chartwell acquisition closed on August 1, 2001) .

Defendant Magliochetti's Testimony

45 . Defendant Magliochetti was CEO and a 10% owner ofChartwell Diversified Service s

before its sale to e -MedSoft . According to Magliochetti ' s testimony on November 14, 2002 in 1M

Diversified . Inc . v . . National entu Financial Enterprises . Inc . . al ., Case No . C2-02-1085 (S .D .

Ohio), before Judge Marbley on a motion for a preliminary injunction, defendant Poulsen and othe r

NCFE-affiliates owned a majority of the shares of Chartwell Diversified Services :

Q. Now, let's understand who is Med Diversified . In fact, LancePoulsen and people affiliated with him are the largestshareholders of Med Diversified, isn't that true ?

A. Absolutely true . (Tr, at 92) .

Q. Now, Rebecca Parrett that you mentioned, she's also ashareholder of Med Diversified, is she not ?

A. She is.

Q. And Mr. Ayres is also a shareholder in Med Diversified , is he not?

A. As well as a board member.

Q. So when we talk about Lance Poulsen and people affiliatedwith him owning the largest single block of shares in MedDiversified, that's who we are referring to, correct? Parrett ?

A. Yes.

Q. Poulsen, Ayres. Anybody else?

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A. Yes, Barbara Poulsen .

Q. That's Lance's wife, correct ?

A. That's correct . (Tr. at 94-95 )

Q. When did Mr. Poulsen and people affiliated with him first

become the largest shareholder block in your companyfChartwell Diversified Services, Inc.], sir?

A. They became a shareholder in Chartwell Diversified

Services in August of 2000. In August of 2001, we sold ourcompany to E-MEDSOFT. COM which was, for allpracticalpurposes, owned by NCFE, and at that point, the fair market

value based on a fairness opinion was approximately 80- to

90 million. That's how they became owners of approximately

45 million in new equity shares . jr. at 104) (emphasis

added) .

*****

[Questions & Answers from pp.] 04-105 omitted]

My salary at the time was 600 thousand . I owned 10 percentof Chartwell Diversified Services . I received five million

shares in the acquisition of E-MEDSOFT - the acquisition ofChartwell by E-MEDSOFT. I received a signing bonus of 5

million options, and that 's my extent of my compensation, so

-- jr . at 106)

The NCFE Ponzi Scheme and E-MedSoft

46. According to a confidential witness ("C/W") with first-hand knowledge who worked

for e-MedSoft in Florida and California from early 2002 until August2002, the Chartwell acquisition

was organized by defendants Andrews, Magliochetti, Stein, Lance Poulsen, Donald Ayers and

Rebecca Parrett . (The C/W reported directly first to defendant Andrews then to Magliochetti .) The

related party transactions between e-MedSoft, Chartwell and NCFE were not a secret among e-

MedSoft employees, according to C/W . Defendant Magliochetti told C/W that e-MedSoft's failure

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to disclose the related parties was done purposely because it "smelled bad ." Shortly after th e

Chartwell deal was completed (see below), Magliochetti "bragged " to C/W that " if something is no t

disclosed, it can't come up and bite you ." According to C/W, defendants Andrews, George Kuselias ,

Suzanne Hosch, Sam J . W. Romeo, Albert Marston and Cedric Johnson also all knew of the relate d

party deals and e-MedSoft's failure to disclose the information .

47. According to C/W, all of e-MedSoft 's acquisitions and related party transactions were

engineered by NCFE, particularly Lance Poulsen . According to C/W, it was known throughout

e-MedSoft that Magliochetti was Poulsen 's "guy." (According to C/W, Magliochetti and Parrett als o

have interests together in a number of limited liability companies . )

48. Throughout the class period, the Company financed its operations through an

accounts receivable purchase p rogram with NCFE and its subsidiaries , which was the principal

source of financing for its operations . Because e-MedSoft was in such poor financial condition an d

depended on NCFE for cash, NCFE charged e-MedSoft approximately 24-25% to financ e

receivables , according to C/W . This was an exorbitantly high rate of interest and e-MedSoft could

have borrowed money for substantially less . NCFE was thus sucking money out of e-MedSoft by

charging such high rates for receivables, according to C/W .

49. There were also "phantom receivables," i .e ., receivables that exceeded the amount s

of actual receivables , which enabled NCFE to record more receivables on its books and, in tu rn , sell

more notes to institutional investors , and thereby raise more capital , according to C/W . NCFE paid

e-MedSoft for receivables and e-MedSoft paid back 24-25% to NCFE in interest .

50. According to C/W, e-MedSoft was not alone, NCFE obtained control over compan ies

like e-MedSoft and then (1) sucked cash out of them ; (2) caused them to become dependent o n

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NCFE for cash to survive; which (3) led the companies to cooperate with NCFE to inflate account s

receivables . This is particularly true with regard to Chartwell, which had three subsidiaries tha t

could sell accounts receivable to NCFE: CCS, CGI and CHI .

Defendant Parrett Describes the NCFE Ponzi Scheme

51 . C/W's statements regarding NCFE's Ponzi scheme with e-MedSoft and Chartwel l

is corroborated by defendant Parrett's own account set forth in her civil complaint . Rebecca S .

Parre tt Y . Bank One, N .A., et al . , CV 2003-002781 (Superior Court, Arizona ) ( filed February 22 ,

2003) ( transferred to this Court by the MDL Panel) .

52 . In her complaint , Parrett alleges that she married defendant Ayers in April 1991 an d

became a Director and T reasurer of NCFE. According to Parrett, between 1994 and 2001, NCF E

(which Parrett alleges includes Lance Poulsen and Ayers , as well as NCFE 's various subsidiaries) ,

purchased receivables at a discount from healthcare providers with funds obtained from the sale o f

asset -backed bonds issued by NCFE subsidia ries : NPF VI, NPF Vil l and NPF XII , with J . P . Morgan

Chase & Co .'s assistance, among others . (Parrett Complt .,'X56)

53 . Parrett alleges that some time before 1998, Lance Poulsen and Ayers created a scheme

whereby receivables purchased and funded byNCFE were intentionally and substantially overvalued .

Lance Poulsen directed NCFE to advance additional funds to healthcare providers on their future

receivables, which then did not exist . (Parrett Complt ., 1160)

54. NCFE's overfunding of existing receivables and advances on future receivables ,

according to Parrett, resulted in substantially excessive overfunding, and thus higher fees and interes t

that healthcare providers owed to NCFE . The scheme also allowed NCFE to list signi ficantly higher

assets , revenues and income on its financial statements and huge sums that healthcare providers had

-23-

to pay NCFE to buy back the "bogus" receivables . (Parrett Complt .,1163) NCFE did not disclose on

its financial statements that they included overvalued existing receivables or advances in non-

existent future receivables . (d.) According to Parrett, by 1999, as much as 50% of NCFE' s

receivables were either worthless or non-existent .

55 . According to Parrett, "NCFE made fraudulent payments to . . . Med Diversified of

almost $100 million ." (Parrett Complt.,168)

56 . According to Parrett, in 2000 J . P. Morgan Chase & Co ., through Beacon, became

an equity investor in and partner of NCFE by acquiring 20% of NCFE . Under the terms of Beacon's

equity acquisition, Beacon was entitled to have two members on NCFE's board, which was enlarged

from four to six members . On July 31, 1998, according to Parrett, Harold W. Pote and Eric R.

Wilkinson, then Beacon officers, became NCFE directors . Pote became Chairman of the Audit

Committee . In 2000, J . P. Morgan acquired Beacon and then "had control of NCFE's Audit

Committee, and with the Poulsens and other Defendants, substantial control ofNCFE's business an d

operations ." (Parrett Complt ., ¶79)

Magliochetti Testifies About E-MedSoft's "Pro Forma" Receivable s

57. Parrett's account of the NCFE-e-MedSoft Ponzi scheme is, in turn, corroborated b y

Magliochetti's testimony. Magliochetti testified that Poulsen directed him to divert several millio n

dollars . (Magliochetti Tr . at 96-97, 214) . Magliochetti also testified that NCFE paid tip front cas h

for future non-existent receivables -- the "phantom receivables" that Parrett described -- whic h

Magliochetti called "pro forma funding ." (Magliochetti Tr . at 108-109) .

58. On May 3, 2001, the Company issued a press release announcing the execution of a

letter of intent whereby it would acquire Chartwell, a privately held company . The press release

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stated that, as a result of the acquisition, the Company would "immediately achieve a combined

annual revenue run rate in excess of $250 million with a substantialpositive EBIDTA. " The May

3, 2001 press release also stated : "Upon consummation of the merger, e-MedSoft .com intends to

undergo a name change to Med Diversified Inc . in order to accurately reflect the sustaine d

integration and diversification its technology has continued to bring about ." According to the press

release, Chartwell's CEO Magliochetti would now become Vice-Chairman and president of e-

MedSoft . The press release also stated the merger was subject to shareholder approval (although

none would ever be sought as later disclosed) and to "the receipt of two fairness opinions," amon g

other things .

59. According to C/W, the announcement of naming Magliochetti the sole chairman an d

CEO was delayed until October 6, 2001 due to the structuring of Andrews ' severance package .

( Before the Chartwell acquisition , there was also talk internally, according to C/W , of a merger

between NCFE and e-MedSoft . )

hartwell' s Revenues

60. Significantly, the May 3, 2001 press release also discussed Chartwell' s alleged annua l

revenues :

Chartwell Diversified Services is a privately held company that,through efficiently matched technology and services solutions,provides home infusion services, clinical respiratory services, homemedical equipment , home health services, and specialty pharmacyservices throughout the United States . As a provider and manager of

health-care services within the alternate site setting, Chartwell andits partnerships ha ve profitably generated annual revenues ofm orethan $150 million and has some 9,000 full-and part-time employee s

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61 . The investing public relied upon the truth of the foregoing statements because

Chartwell was a privately held company with financial statements that were unavailable to th e

investing public . Asa result of the press release, the price of the Company's stock jumped 61% from

a closing price of $0 .74 on May 3, 2001 to a closing price of $1 .19 on May 4, 2001 on heavy trading

volume of 3,945,600 shares . In the days that followed, the stock jumped even higher, to almost $ 2

per share in extremely heavy trading .

62. On May 21, 2001, The Florida Times-Union of Jacksonville published an articl e

concerning e-MedSoft's acquisition of Chartwell based upon an inte rv iew with defendant John F .

Andrews :

The Jacksonville Beach -based company, which p rovides health careinformation systems through the Internet, agreed earlier this month tobuy Cha rtwell Diversified Services Inc ., a Boston-based firm thatprovides home health care services and has annual revenue of morethan $ 150 million . That's quite a jump up for e-MedSoft, whichrepo rted revenue of only $32 million in the nine months ended Dec .31 .

"It changes the scale of the company, the financial status of thecompany," said John F. Andrews, chairman and chief executiveofficer of e-MedSoft . . . Andrews said Chartwell is a profitablecompany with annual earnings before interest, depreciation, taxesand amortization of about $7 million to $15 million. "Financiallythey're doing very, very well, " he said .

E-MedSoft, which only began its operations at the beginning of 1999,

had a net loss of $30 .1 million for the nine months ended Dec. 31 .

Before the merger, analysts had projected the company would not beprofitable before fiscal 2003 .

63 . The May 3, 2001 press release and the statements Andrews made in the May21, 200 1

news article were materially false and misleading because there was no basis for the statement tha t

the combined Company would "immediately achieve a combined annual revenue run rate in exces s

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of $250 million" and the statement that "Chartwell is a profitable company with annual earnings

before interest, depreciation, taxes and amortization of about $7 million to $15 million" was untrue .

In addition, the statements were materially false and misleading because they failed to disclose that

Chartwell was a related party by virtue of Ayers' significant Chartwell shareholdings beginning in

August 2000, and the fact that Chartwef's principal shareholders were also the principal and

controlling shareholders of NCFE, a principal shareholder of the Company) .

64. On May 15, 2001, the Company and Chartwell issued a joint press release announcing

they had executed a definitive merger agreement . The press release stated that Chartwell was a

privately held company and described its business but did not disclose that Chartwell was a related

party, and thus was materially false and misleading .

65. On May 18, 2001, the Company issued a press release announcing that Margaret

Harris, the Company's Chief Financial Officer had resigned effective May 16, 2001, to "pursue other

opportunities ."

66 . On June 1, 2001, the Company issued a press release stating that Chartwell receive d

a fairness opinion justifying the purchase price contemplated in the definitive agreement and that

Chartwell shareholders had approved the transaction . (No disclosure was made about whether the

Company had received a fairness opinion .) Significantly, the June 1, 2001 press release stated that :

"Consummation of the merger is subject to among other conditions . . . the completion of due

diligence of the business and operations of each company by the other."

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TSI and Mitchell Stein's Secret Sales of e-MedSoft Stock in June and July 200 1

67. In June and July, 2001, TSI, SWAB Financial and Mitchell Stein sold millions o f

shares of e-MedSoft stock in a way designed to avoid detection . In an amended complaint filed in

Los Angeles on April 14, 2003, defendant TS I, now known as SWAB Financial, LLC, described a

series of stock transactions by which it sought to secretly sell millions of shares of e-MedSoft .com

common stock . (SWAB Financial . LLC v . David Feldman , et al ., Case No . BC 280610 (Cal . Sup .

Ct., Los Angeles Cty .) . TS1 and its successor SWAB Financial, LLC, are owned and controlled b y

defendant Mitchell J . Stein .

68. TS I, entered into five separate written stock transfer agreements with San Diego Asse t

Management, a company that managed wealthy individuals' portfolios, to sell millions of shares o f

e-MedSoft .com stock. The agreements to sell TSI"s e-MedSoft .com stock were structured to avoi d

incurring a large stock price drop that would inevitably accompany a wholesale dumping of e-

MedSoft .com stock into the marketplace . The five agreements were entered into, according to the

SWAB complaint , "for the business purpose of facilitating an orderlyand regulated sale of its shares

of MED stock into the market." (SWAB amended complaint , 1121) . Under the terms of the five

stock agreements, San Diego Asset Management was to create 5 partnerships that would hold TSI' s

e-MedSofl .com stock and sell shares of the stock at regular intervals .

69. TSl entered into the following five agreements:

a. Under the terms of the First Agreement, dated December 20, 2000, TSI agree d

to sell 6,000,000 shares of e-MedSoft .com stock to "Partnership I" for $1 .15 per share. (SWAB

Complaint, 123) . In the First Agreement, Partnership I agreed not to sell more than 150,000 share s

of e-MedSoft .com stock per month .

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b. Under the terms of the Second Agreement, dated January 23, 2001, TSI agree d

to sell 3,500,000 shares of e-MedSoft .com stock to Partnership 11 at $1 .20 per share . Partnership l i

agreed not to publicly sell more than 100,000 shares of the eMedSoft .corn stock per month.

c . Under the Third Agreement, dated February 5, 2001, TSI agreed to sell

1,500,000 shares of e-MedSoft .com stock to Partnership III at $1 .20 per share . Partnership III agreed

not to sell publicly more than 60,000 share of e-MedSoft .com stock per month .

d. Under the Fourth Agreement, dated February 19, 2001, TSI agreed to sel l

2,000,000 shares of e-MedSoft .com stock to Partnership IV at $1 .35 per share. Partnership IV

agreed not to publicly sell more than 80,000 shares per month .

e . Under the Fifth Agreement, dated February 7, 2001, TSL agreed to sel l

1,000,000 shares of e-MedSoft .com stock to Partnership V at $1 .50 per share . Partnership V agreed

not to publicly sell more than 50,000 shares of e-MedSoft .com stock per month .

(The 5 agreements are annexed hereto together as Exhibit A) .

70 . SWAB' s complaint alleges that the Partnerships sold $1 .056 million worth of e-

MedSoft .com stock during the month of June 2001 and $2 .075 million of e-MedSoft .com stock

during the month of July 2001, an amount far in excess of the agreed-upon amounts under the fiv e

stock transfer agreements . (SWAB complaint, ¶32) .

71 . On July 15, 2001, the Company issued a press release stating that it would delay filin g

of its audited financial statements and annual report on Form 10-K for the fiscal year ended Marc h

31, 2001 . The Company gave a number of reasons for the delay, including the Company's relocatio n

of its finance department from California to Florida and its need for additional time to assess asset

-29-

impairment issues . These reasons and others stated in the July 16, 2001 press release were false .

According to C/W, the Company delayed filing because of its inability to "make its numbers ."

Defendants Continue to Pump the Stock

72 . On July 17, 2001, the Company issued a press release announcing that "a n

institutional investor" had agreed to purchase $83 million of newly issued shares of the

e-MedSoft.com's common stock. According to defendant Andrews who was quoted in the press

release the stock purchase : "`represents in my view the last piece of the puzzle of MED to roll up

significant and wide reaching portions of the health care industry, in all sectors, following the

Chartwell closing."' Andrews also told the public : "`1 believe that the hurdles for this investment

are minimal and the Company is forecasting that it will be able to access the full amount of cash by

the end of calendar year 2001 . "'

73 . The so-called "institutional investor" referred to that would provide $83 million in

financing was San Diego Asset Managementthe Company that Mitchell Stein used to surreptitiously

sell his e-MedSoft stock .

False Statements About the Chartwell Merge r

74. On August 1, 2001, the Company issued a press release stating that, for the 200 1

fiscal year ended March 31, 2001, the Company reported a loss from continuing operations of $258 .8

million, or $3 .25 a share, much wider than the $9 .3 million, or 17 cents a share, loss reported the

previous fiscal year. According to the press release, the loss was largely due to $201 million in

write-downs of impaired assets . It also quoted Andrews :

2002 will be a year of continued challenges, transition and focus onthe Company's core business segments . We will emphasize executionof the Company's business plan to evolve from a pure-play dot-co m

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to a service oriented company. We will continue to exploitopportunities to reduce costs while exploring marketopportunities that offer long-term profit potential . Consistentwith this strategy is the Company 's previously announced mergerwith Chartwell Diversified Services , Inc., a privately heldcompany that provides home infusion services , clinicalrespiratory services , home medical equipment , home healthservices and specialty pharmacy services throughout the UnitedStates.

75 . The August 1, 2001 press release was materially false and misleading because there

was no basis for the inference that the Chartwell merger presented an opportunity to reduce costs an d

to increase long-term profit potential .

76. On August 1, 2001, the Company also filed its Annual Report on Form IO-K for th e

fiscal year ended March 31, 2001 . The Form 10-K was signed by defend an ts John F. Andrews,

Suzanne Hosch, Donald Ayers, Sam J . W . Romeo, Albert Marston and Cedric Johnson . With

respect to Chartwell, the Form 10-K stated :

Consummation of the pending merger with Chartwell could be of

critical importance to the Company's ability to continue as a goin gconcern .

We believe that the combination of our technology services andpharmacy services with their healthcare operations will result in new

business opportunities, as well as provide financing resources .

77. The foregoing statements were false and misleading for the reasons stated in 1161, 63 .

The Form 10-K disclosed that Ayers, a member of e-MedSoft's board was also a shareholder of

Chartwell but said nothing about the extensive ownership ofChartwell by the Poulsens and Parrett .

In fact Ayers, the Poulsens and Parrett owned 88% of Chartwell . This was a fact well known to

defendants, including those that signed the Form I O-K, according to C/W .

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78 . On August 6, 2001, the Company issued a press release announcing that the merger

with Chartwell "has been completed today ." The press release stated , in relevant part :

John F. Andrews stated : "The combination with Chartwell brings tous all of Chartwell's management and operational strengths . We alsoexpect that Chartwell will generate a healthy cash flow fromproviding health care services using our technologies . . . I believeour investment should start reaping returns , especially with theadded management strength provided by Chartwell. I believe MEDis poised to benefit from the current health care industry flux ."

For the five months ended June 30, 2001, Chartwell recordedunaudited net revenues under management of approximately$60,000,000 with gross profit of approximately $40,000,000 andapproximately $5,500,000 of EBITDA before minority interest .Commenting on this performance, Mr . Andrews continued : "We

expect that this transaction will have a significantly positive impacton our operations. We expect this to be our platform for growth

over the next severalyears. Equally as important is the proven recordof execution of Chartwell' s team. We are very fortunate to have theopportunity to work with Mr. Magliochetti in taking this company toits next level of achievement ."

As originally contemplated, MED shareholders were to be asked toapprove the issuance in the merger of 50,000,000 in common stockand warrants covering an additional 20,000,000 in compliance withthe rules of the American Stock Exchange ("AMEX") . Under

applicable corporate law, shareholder approval is not required toapprove the merger itself. It was originally anticipated that thisapproval would be sought prior to the merger, sometime inSeptember. The delays in completing its year-end audit and filing

of its annual report on SEC Form 10K caused the companies torealize that MED could benefit immediately from Chartwell'sfinance andaccounting infrastructure as opposed to waiting severalmonths under the original schedule. Additionally, MED's cashresources reached a level of inadequacy such that there was noassurance that the additional time required to prepare and clear a

proxy statement with the SEC and close the transaction under theoriginal schedule would not cause MED to be unable to meets its

current obligations as they became due . Also, as a result of the delays

in filing the 10K, the AMEX halted trading for 3 days in MED stock .Trading resumed on August 3 . Accordingly, the Boards of Directors

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of the companies restructured the form of the consideration to be paidto Chartwell shareholders to permit an expedited closing of themerger and to provide the shareholders of MED an opportunity toapprove the issuance of the common stock in the future . All requiredcorporate action has been taken by both parties to proceed withcompletion of the merger .

79 . The August 6, 2001 press release was materially false and misleading because ther e

was no basis for the statement that :

a. The Chartwell investment "should start reaping returns . "

b . "We expect that this transaction will have a significantly positive impact on

our operations ."

c. "We expect this [Chartwell] to be our platform for growth over the nex t

several years ."

80. In addition, the August 6, 2001 press release was materially false and misleadin g

because it failed to disclose that Chartwell was a related party as set forth above . E-MedSoft pai d

forthe Chartwell acquisition using 500 , 000 shares of newly-issued Series A preferred stock (carrying

voting rights and convertible into common stock) and warrants to purchase 20,000,000 shares o f

the Company' s common stock at a $4 .00 exercise price . According to a Company disclosure file d

months after the merger, the following related parties received the consideration the Company pai d

for their Chartwell stock : Lance Poulsen (108,900 preferred shares ; 4 .365 million warrants) ; Barbara

Poulsen (same ) ; Ayers, LLC (same) ; Cheyenne-Blaze , LLC (same) ; Frank P . Magliochetti, Jr .

(50,000 preferred shares; 2 million warrants) ; Edwin A. Reilly (2,500 preferred shares ; 100,000

warrants) . See Schedule DEF 14A, filed November 21, 2001 .

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81 . According to CIW , Magliochetti also received undisclosed compensation i n

connection with the Chartwell acquisition . Defendant Magliochetti became Co-CEO and Vice-

Chairman of the Company on August 6, 2001 and received $7 .1 million as a sign-on and

performance bonus . '

82 . Magliochetti also received residential property in Fort Myers, Florida as part of hi s

sign-on bonus, according to C/W . The grant of this property to Magliochetti was not disclosed in

any of the Company's public filings . This home previously belonged to defendant Donald H . Ayers,

according to C/W. A search of the property records in Lee County, Florida reveals that Donald and

Elise Ayers transferred ownership of a house in Fort Myers, Florida to Patricia Magliochetti o n

December 6, 2001 .

83 . On August 7, 2001, the Company issued apress release stating that the Company had

performed due diligence and analysis of Chartwell's business "over the past six months." This

representation induced the investment community to believe falsely that the above identified

statements were based upon the Company's factual investigation ofChartwell's financial data, whic h

was untrue.

84 . On August 21, 2001, the Company filed a Form 8-K with the SEC reporting th e

Chartwell acquisition . The 8-K stated : "The financial statements ofChartwell Diversified Service s

Inc . will be filed by amendment on or before October 21, 2001 ." For the first time, the Form 8-K

disclosed that related parties (unidentified except for Ayers) were tied to Chartwell :

Defendant Andrews was Co-CEO from August 6, 2001 to October 6, 2001, when he

stepped down from his executive position, but stayed on as a board member and consultant . On

October 6, 2001, Magliochetti became CEO and Chairman of the Board .

-34-

Chartwell's principal shareholders are also the principal shareholdersofNational Century Financial Enterprises ("NCFE"), a principalshareholder of the Company. This includes Donald Ayers, a memberof the Board of Directors of the Company . As a result, at theTransaction Date, NCFE and affiliates of NCFE (includingemployees) have approximately 38% of the voting rights of the

Company's shareholders.

Defendants Hype a Proposed Acquisition of Anus

85. On August 22, 2001, the Company issued a press release touting the Chartwell merge r

and announcing that it would soon acquire Addus Healthcare , Inc. ("Addus") :

JACKSONVILLE BEACH , Fla. & LOWELL, Mass. - August 22,2001

e-MedSof .com, dba Med Diversified (AMEX : Med-news), fresh offits recent merger with Chartwell Diversified Services, Inc .,announced today that it has inked a Letter of Intent to acquireprivately held Addus Healthcare, Inc . for $57,000,000 in cash and as

much as 5,000,000 worth of Med Diversified common stock .

The acquisition is the first in a series of transactions the Companyhopes to attract under its new health care technology and services

approach .

Frank Magliochetti , President and Co-CEO of Med Diversified,commented : `We are very pleased to have such an opportunity tobring a premier company like Addus within the Med Diversifiedorganization . '

Mr. Magliochetti also said : `The cumulative synergies between thecompanies are remarkable. Not only in complimentary service linesbut with a migration of our technology into Addus' core business inlowering operational costs . '

S6. The foregoing statements were false and misleading because they gave the investing

public the impression that e-MedSoft.com had adequate financing to acquire Addus and othe r

companies and thus continue to expand its "diversified" business . In fact, however, the Company

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was only able to procure the necessary financing by offering false receivables as collateral for the

bond financing it sought to raise to pay for the Addus acquisition, as described below . After th e

close of the class period, defendant Magliochetti wrote an e-mail to an investor , dated June 24, 2002 ,

stating: "Do I regret putting out an early release on Addus, yes . Once you ring a bell it can not be

unrung . I as I [sic] should accept all of the responsibility ." As a result of this press release, th e

Company's stock price shot up from a close of $1 .60 on August 22, 2001 to a close of $2 .30 on

August 23, 2001 , on volume of almost 3 million shares . The Company' s stock price continued to

rise throughout August 2001 .

Defendants Hype a Proposed Acquisition of Tender Loving Care

87 . On August 28, 2001, the Company announced it would acquire another company,

continuing its string of acquisitions that started with Chartwell . On that date, the Company

announced it had agreed in principle to acquire Tender Loving Care, Inc., a nursing home business :

JACKSONVILLE BEACH, Fla . & LOWELL, Mass., Aug. 28,200Ie-MedSoft .com, dba Med Diversified (AMEX : MED), todayannounced that it has signed an agreement to acquire Tender Loving

Care, Inc. (OTCBB: TLCS), one of the five largest home care nursingbusinesses in the world .

Frank Magliochetti, the vice chairman and CEO of Med Diversified,added: `With the acquisition of TLCS, we will have added thedimension to the company that was most critical to our strategic planto deliver a complete solution throughout the continuum of healthcare .

`On a going-forward, post-merger basis, it is believed that thecompany expects to achieve total revenues under management (on apost-acquisition basis, ex of acquisition-related charges) of at least

$700 million with an EBIDTA of $35 million before minorityinterest.'

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88, The foregoing statements were false and misleading because the Company had no

legitimate way to pay for this acquisition, as alleged more fully below . In addition, there was no

basis for defendant Magliochetti's statement that the Company would have revenues of "at least

$700 million" after the acquisition .

89. On October 1, 2001, the Company issued another press release to explain how i t

would pay for its recently announced corporate integration and expansion strategy . According to the

Company's press release, it had received $40 million in convertible debenture financing from Societe

Financiere du Seujet, Ltd . ("SFSL"), a Geneva, Switzerland investment bank . According to the

October 1, 2001 press release : "The initial $40 million infusion will be used to move forward on

lthe acquisitions ofAddus Healthcare and Tender Loving Care Health Care Services, Inc ./ and

possibly other acquisitions ." The Company stated that the $40 million tranche received by the

Company on October 1, 2001, was committed at 2 points above LIBOR . The debentures were

payable at year's end, according to the Company, "subject to pre-payment rights and rights to utilize

collateral for repayment, and subject to limited conversion rights after November 15, 2001 ."

(Emphasis added . )

90. The October 1, 2001 press release also quoted defendant Magliochetti :

Frank Mag] iochetti . . . stated he was `proud that the Company is ableto close such accretive financing in what has to be one of the

toughest capital markets in recent memory.' Mr. Magliochetti

continued: `This is a very tough time for all businesses and models,

however, our ability to consummate this financing and push

forward our stated operational and expansion objectives speaksvolumes about the confidence investors and customers are showingabout out technologies and service offerings. We are now poised tocontinue our consolidation and expansion of this industry .' (Emphasis

added) .

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Magliochetti and Stein Defraud PIBL to ObtainFinancing for Addus and Tender Loving Care

91 . The foregoing statements contained in the August 22, August 28 and October 1, 200 1

press releases were false and misleading because the Company had obtained the $40 million i n

financing by falsely assuring one of its creditors, PIBL, that the Company had pledged adequate

collateral, namely a portion of its receivables, for the financing . According to PIBL's complaint ,

Magliochetti, Ayers and Stein requested, on September 1, 2001, that SFSL lend e-MedSoft up to $80

million to fund the Company's purchase of Tender Loving Care and Addus. (PIBL Complt .,'¶¶21 ,

23) . According to PIBL' s complaint against the Company, NCFE and Magliochetti, on October 1 ,

2001, SFSL arranged for the funding of $40 million in loans to e-MedSoft for four short-term

convertible debentures . Private Investment Bank Limited v . Mod Diversified . Inc ., et at ., 02-04802

(C.D. Ca .) (filed June 18, 2002). PIBL, actually provided the $40 million and received a n

assignment of the debentures from SFSL . E-MedSoft issued 13 .2 million shares of its common

stock as collateral for the repayment of the debentures ' principal and interest. SFSL assigned the

shares to PIBL .

92 . Thereafter, e-MedSoft' s stock price declined substantially, devaluing the collatera l

for the debentures . According to the P1BL Complaint, e-MedSoft sought to refinance the debenture s

and to obtain another $30 million in financing to buy Addus . E-MedSoft offered its accounts

receivable as collateral for the four debentures already issued and sought a greater extension of credi t

from PIBL .

93. On December 1, 2001, Magliochetti received a phone call from a representative o f

SFSL. Magliochetti learned that the Company would be receiving financing for the PIBL deal .

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PI B L agreed to refinance and extend the maturity date on the $40 million of debentures and extende d

another $30 million . E-MedSoft promised to wire transfer cash from its accounts receivable to

PIBL's bank, Three Rivers Bank .

94. According to the PIBL Complaint, e-MedSoft never sent any money to PIBL's ban k

account as collateral for the payment of the convertible debentures . On January 31, 2002, according

to the PIBL Complaint, PIBL received a fax from e-MedSoft's CFO, defendant George Kuselias ,

containing completed audit confirmation documents . E-MedSoft asked PIBL in the fax to execut e

and send confirmations directly to e-MedSoft's independent auditors, KPMG. The audi t

confirmation documents purported to describe the amounts owed under, and the terms of, th e

debenture agreements . PIBLnoticed that the documents made no mention of the accounts receivabl e

collateral that e-MedSoft was to provide . PIBL contacted e-MedSoft and urged it to correct thei r

false and inaccurate statements, which Kuselias said he would do, according to the PIBL Complaint .

95. On February 7, 2002, however, PIBL received from Jim Shanahan , a Vice Presiden t

and Controller ofe-MedSoft, a faxed copy of a document purporting to be executed copies of the

debentures . According to the PIBL Complaint, the debenture document had deleted the key

paragraphs regarding the accounts receivable e-MedSoft was to post as collateral for the refinancing

and the additional $30 million loan, and bore forged signatures ofPIBL directors . According to th e

PI BL Complaint, PIBL realized the Company was attempting to hide the collateral agreement from

its public auditor, KPMG .

96. According to the PIBL Complaint, PIBL confronted Stein and Magliochetti .

Defendant Magliochetti admitted that he had forged the debenture agreement and that "all o r

substantially all of the Company's medical accounts receivable had already been pledged to NCFE .

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(PIBL Complaint, ¶53) . Accordingly, no money would flow to PIBL's collateral account . E-

MedSoft refused to make any payment of collateral on the $70 million it obtained from PIBL .

97 . Defendants Kuselias , Hosch , Romeo, Marston and Johnson , according to C/W, al l

knew about the PIBL agreement and the forged documents used to deceive KPMG about the

accounts receivable . These defendants all approved the PIBL deal, according to C/W .

98. In an email dated July 1, 2002, defendant Magliochetti gleefully boasted to an

investor regarding the PIBL matter : "How many people do we know who can raise $7Omm wit h

emeds balance sheet and give up no collateral? "

99. The following day, July 2, 2002, Magliochetti showing his state of mind that he wa s

proud he had defrauded the Swiss (SFSL) (like the shareholders here), again emailed the investo r

about PIBL . In his e-mail, Magliochetti bragged that he had gotten the Swiss to "release[] 70m m

out of escrow without getting their collateral secured ." Magliochetti did not deny that the Compan y

owed the Swiss the money, but continued to boast that the Swiss "have no freaking collateral for the

70mm. They are an unsecured creditor. How about them apples." Magliochetti went on . "I beat

them," and "now I'm saying flu ." Magliochetti told the investor, "We are not going to pay the m

unl ;ess [sic] it is on our terms ."

The Tender Loving Care Acquisitio n

100 . On October 19, 2001, the Company announced that a definitive agreement to acquire

Tender Loving Care for $1 .00 per share had been reached . With approximately 11,819,653 share s

of Tender Loving Care outstanding, the tender offer transaction was valued at $11 .9 million. No

disclosure was made regarding the source of funds for this acquisition or the fact that the Compan y

had fraudulently obtained financing from PIBL. The Tender Loving Care acquisition closed in

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November 2001 . Tender Loving Care was another acquisition engineered byNCFE. In November

2001, Tender Loving Care owed NCFE approximately $84.7 million, according to Company filings .

Tender Loving Care needed continued NCFE funding to have sufficient cash to support it s

operations .

Chartwell' s Restatements

101 . On October 22, 2001, the Company filed a Form 8-K/A with the SEC whic h

contained the financial statements of Chartwell as follows :

For the Period SixF rom Inception Months(2/23/00) Endedto 12/31 /00 6/30/0 1

Net revenues 60,316,304 85,850,000Cost of goods sold 19.954.937 35,073,00 0

Gross profit 40 ,361,367 50.777000

Operating expenses :General and administrative 34,945,208 47,083,000Depreciation and amortization 704,539 1316 .000

Total operating expenses 35 .649.747 48.399 .000

Operating income 4,711,620 2378,000

Other income ( expenses) :Interest income 97,650 -- -Interest and other expense (1,186,912.) (2,042,000)

Total other income (expenses) (1,089,262) (2 .042 .000)

Minority interests ( 1 .506.862) ( 1 .750.000)

Income (loss) before income taxes 2,115,496 (1,414,000)Income taxes :

Current 1,850,939 ---Deferred (benefit) (8 .569.724) ---

Total income tax (benefit ) (6,718 785) (756,000 )

Net income ( loss) 8 ,834,281 (658 .000)

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102. The Chartwell financial statements which were presented in the Company's October

22, 2001 Form 8-K/A were materially false and misleading because they p resented materiall y

overstated gross profit, operating income and net income as subsequently revealed throug h

restatement .

103 . In addition , the October 22, 2001 Form 8-KJA disclosed the fact that (i) Chartwell' s

revenue for the period from inception (February 23, 2000) to December 31, 2000 include d

$3,835,829 of "fees" (management fees of $2,710,355 and collection fees of $1,125,474) from

related parties which had not been remitted to Chartwell as of December 31, 2000 and that (ii )

Chartwell's revenue for the six months ended June 30, 2001 included a material amount of fees fro m

related parties .

104. On November 15, 2001, e-MedSoft issued a press release on its reported financia l

results for its second fiscal quarter ended September 30, 2001 . The Company reported net revenues

of $39 million, up 62% from the prior year period . Gross profit was $12 .6 million as compared to

$7.3 million in the prior year period, a 72 .6% increase . The press release went on :

`The primary factor affecting our financial results this quarter isthe merger of Chartwell Diversified Services with e-MedSoft .com,'said Frank P . Magliochetti Jr ., chairman and chief executive officerof Med Diversified . ` While our operational performance greatlyimproved in the home health care services segment, we wereadversely impacted by the e-medsoft.com core business, acquisitioncosts related to the merger, and large asset impairment costs -particularly in the Internet business . '

The merger of e-MedSoft. coin and Chartwell Diversified Serviceswas a transforming eventfor both companies . The scale, scope, andmarket reach that Med Diversified represents in the home health careinformatics and services market present a breakaway opportunityfrom other home health care industry comparables . Although the

Company expects to recognize the ancillary benefits of e-

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MedSoft.com's enterprise technology - focusing on the networktelemedicine initiatives - the additional unprofitable business unitsinherited from the e-MedSoft .com merger will be eliminated . Overthe next four quarters, the Company expects to improve gross

margins in the home health care divisions by controlling direct andindirect costs and utilizing e-MedSoft .com's enabling technology.

105 . On November 15, 2001, the Company filed its report on Form l0-Q for the quarterl y

period ended September 30, 2001 with the SEC ("the September 30, 2001 Form 10-Q") . It was

signed by Magliochetti and Kuselias . This document stated :

On October 22, 2001, the Company filed an 8-K which includedaudited financial statements of Chartwell and certain pro forma

financial information . The Company has evaluated the accountingpolicies utilized inthese financial statements and has determined thatreporting financial information of certain joint ventures utilizing theequity basis of accounting more accurately reflects the financialposition and results of operations of the Company in accordance withgenerally accepted accounting principles in the United States . TheCompany anticipates amending the financial information included in

that 8-K, to the extent possible, by November 30, 2001 .

106 . This disclosure caused the price of the Company's stock to decline .

107 . The November 15, 2001 Form 10-Q also stated that the Company had entered int o

a Short Form Debenture and Equity Agreement with SFSL under which the Company could receiv e

up to $54 million in financing from SFSL . The Company failed to disclose, however, that PIBL had

actually lent $40 million to the Company under this agreement and that the Company had no

intention of providing adequate collateral to back the debentures . In addition, the Form 10-Q

repeated the Company's false assertions about its intent to purchase Addus . As alleged above, the

Company was without sufficient funds to purchase Addus .

108 . On November 30, 2001, the Company filed a Form 8-K/A with the SEC signed b y

Magliochetti and Kuselias which contained restated Chartwell financial statements and which stated-

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This filing amends the Current Report on Form 8-K reportingfinancial statements, proforma financial information and exhibitsrelated to the August 6, 2001 acquisition of Chartwell DiversifiedServices, Inc . ("Chartwell") by e-Medsoft .com ("e-Medsott" or the

Company") which was previously filed by the Company on October22, 2001 . In that Report, the Company included in the auditedfinancial statements of ChartwelI and proforma financial informationcertain joint ventures of Chartwell on a consolidated basis .

The Company has reevaluated the accounting policies utilized in theaforementioned financial information and statements and hasdetermined that reporting financial information of certain jointventures utilizing the equity basis of accounting more accuratelyreflects the financial position and results of operations of the

Company in accordance with generally accepted accountingprinciples in the United States . In addition, the Company determinedthat the accounting for income taxes in the audited financialstatements of Chartwell was not in accordance with accountingprinciples generally accepted in the United States .

The Company has disclosed herein the effects of these changes in

accounting treatment in the presentation of proforma financialinformation for the year ended March 31, 2001 and as of and for thethree months ended June 30, 2001 .

The Company has also disclosed herein the comparative effect of thischange in accounting treatment on the consolidated condensedfinancial statements of Chartwell as of and for the period frominception to December 31, 2000 .

109, Chartwell' s restated financial statements reflected materially lower gross profit,

operating income and net income as follows :

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For the Period Six

From Inception Months

(2/23/00) Endedto 12131 /00 6/30/0 1Restated Restated

Net revenues 34,719,000 54,428,000Cost of goods sold 5,926,000 32,488,000Gross profit 28,793,000 21,940,000

Operating expenses :General and administrative --- 21,772,000

Depreciation and amortization --- 650,000

Total operating expenses 27,042,000 22,422,000

Operating income 1,751,000 ( 482,000)

Other income (expenses) :Interest income --- -- -Interest and other expense --- (2,547,000)

Total other income (expenses) 364,000 (2,547,000)

Minority interests --- ( 19,000)Equity in earnings of

non-consolidated subsidiaries --- 1,710,000

Income (loss) before income taxes 2,115,000 (1,338,000 )

Income taxes :Current --- -- -Deferred (benefit) ( --- )

Total income tax (benefit) 769,000 (680,000 )Net income (loss) 1,346,000 (658,000 )

110. The November 30, 2001 Form 8-K/A was materially false and misleading becaus e

(as subsequently revealed in a Form 8-K/A which was filed with the SEC on February 11, 2002) th e

restated Chartwell financial statements contained therein were not prepared in conformity with

GAAP and were required to be restated for a second time .

111 . On December 27, 2001, the Company announced that it had executed a definitiv e

agreement for the issuance of bonds over the next year in the amount of $1 billion with a minimum

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guaranteed commitment of $300 million. According to defendant Frank P . Magliochetti who wa s

quoted in the press release :

There is no question that we currently are well positioned for solidrevenue growth in 2002 . This financing is further validation that our

business model and strategy are being executed to plan anddemonstrates a strong confidence in the strength of the organization .

112 . Shortly after this press release, defendant Stein (through TSI) and Lance Poulse n

dumped millions of shares of their Company stock, as set forth in the table below .

113 . On January 9, 2002, e-MedSoft .com changed its name to Med Diversified, Inc. In

a press release issued on that date, the Company stated the new name reflected its "expanded scope

of operations following the successful merger with Chartwell Financial Services, Inc . . . . . "

114. On February 11, 2002, the Company filed a Form 8-K/A with the SEC stating :

This Filing amends the Current Report on Form 8-K reportingfinancial statements, proforrna financial information and exhibitsrelated to the August 6, 2001 acquisition of Chartwell DiversifiedServices, Inc . ("Chartwell") by e-MedSoft .com ("e-MedSoft", "MedDiversified" or "the Company") which was previously filed by theCompany on October 22, 2001 . In that Report, the Company includedin the audited financial statements of Chartwell and proformafinancial information certain joint ventures of Chartwell on aconsolidated basis .

On November 30, 2001 the company filed an amended report on

Form 8-K indicating it had reevaluated the accounting policiesutilized in the aforementioned financial information and statementsand had determined that reporting financial information of certain

joint ventures utilizing the equity basis of accounting more accuratelyreflected the financial position and results of operations of theCompany in accordance with generally accepted accountingprinciples in the United States . In addition, the Company determinedthat the accounting for income taxes in the audited financialstatements of Chartwell was not in accordance with accounting

principles generally accepted in the United States .

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The Company has provided revised consolidated financialstatements of Chartwell as of and for the period from inception toDecember 31, 2000 . The Company has disclosed herein the effectsof these changes in accounting treatment in the presentation ofproforma financial information for the year ended March 31, 2001and as of and for the three months ended June 30, 2001 .

115. ChartwelI's re-restated financial statements reflected the following :

For the Period From Inception(2/23/00) to 12/31/00Re-restate d

Net revenues 38,486,686Cost of goods sold 8,253,81 2

Gross profit 30,232,874

Operating expense sGeneral and administrative 27,871,224Depreciation and amortization 441,944

Total operating expenses 28,313,168Operating income 1,919,706

Other income (expenses) :Interest income 38,544Interest and other expense (1,186,854 )

Total other income (expenses) (1,148,310 )Minority interests (66,890)Equity in earnings ofnon-consolidated subsidiaries 1,309,69 1Income (loss) before income taxes 2,014,197Income taxes :

Current 1,749,640Deferred (benefit) (1,065,566)

Total income tax (benefit) 684,074Net income (loss) 1,330,123

116. The price of the Company's stock commenced a sharp decline upon disseminatio n

of the re-restated Chartwell financial statements, in recognition of the fact that defendants' financia l

reporting lacked credibility as evidenced by the following :

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For the Period From Inception

(2123100) to 12/31/00

Initially First SecondReported Restated Restated

Net revenues 60,316,304 34,719,000 38,486,68 6Cost of goods sold 19,954,937 5,926,000 8,253,81 2

Grossprofit 40 ,361,367 28,793,000 30,232,87 4

Operating expenses :Gen'l and administrative 34,945,208 --- 27,871,224Depn . and amort ization 704,539 - 441,944

Total operating expenses 35,649 ,747 27,042,000 28,313,168Operating income 4,711,620 1 , 751 ,000 1,919,706

Other income ( expenses) :Interest income 97,650 --- 38,544Interest and other ( 1,186,912 ) --- ( 1,186,854)

Total other income (expenses) ( 1,089,262) 364 ,000 (1,148,310 )

Minori ty interests ( 1,506,862 ) ---- (66,890)Equity in ea rn ings ofnon-consolidatedsubsidiaries 1,309,69 1

Pre-tax income ( loss) 2,115 , 496 2 , 115,000 2,014,197Income taxes :

Current 1,850,939 --- 1,749,640Deferred (bene fit) (8,569 , 724) --- (1,065,566 )

Total income tax (benefit ) (6,718,785 ) 769,000 684,074Net income ( loss) 8 ,834,281 1,346,000 1,330,123

Six Months Ended 6/30/0 1Initially

Reported Restated

Net revenues 85,850,000 54,428,00 0Cost of goods sold 35,073,000 32,488,00 0

Gross profit 50,777,000 21,940,00 0Operating expenses :

Gen'I and administrative 47,083,000 21,772,000

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Depn. and amortization

Total operating expensesOperating incom e

Other income (expenses) :Interest incom e

Interest and otherTotal other income (expenses)Minority interests

Equity in earnings ofnon-consolidatedsubsidiarie s

Pre-tax income (loss)Income taxes :

Curren tDeferred (benefit)

Total income tax (benefit)Net income (loss)

1,316,000 650,00048,399,000 22 ,422,00 0

2,378 ,000 ( 482,000 )

(2,042,000) (2,547,000)(2,042,000) (2,547,000)(1,750,000) ( 19,000)

--- 1,710,000(1,414,000) (1,338,000 )

(756,000) (680,000)(658,000) (658,000)

POST CLASS PERIOD EVENTS

117 . On May 22, 2002, the American Stock Exchange notified the Company that it wa s

not in compliance with AMEX standards for continued listing . The Company was delisted on July

15, 2002 .

118 . OnJuly 26, 2002, the Company's auditor, KPMG, resigned, citing "likely illegal acts"

that came to its attention during KPMG's audit of the Company's financial statements for the yea r

ended March 31, 2002 . KPMG also wrote a letter on that date informing the SEC of its resignation

and of KPMG's dissatisfaction with the Company's internal investigation into the allegations of

financial statement fraud made in the PIBL Complaint relating to the forged debenture agreemen t

that deleted references to the Company's accounts receivable collateral . The Company countered

with a letter of its own on July 29, 2002 to the SEC denying any wrongdoing and relying on th e

results of an independent internal investigation that concluded the Company's financial statement s

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conformed to Generally Accepted Accounting Principles and were fairly stated . E-MedSoft's CFO ,

George Kuselias , abruptly resigned from the Company (or was fired) on August 1, 2002 . On Augus t

16, 2002, KPMG wrote again to the SEC, rebutting Company claims that KPMG had any input int o

the scope or depth of the Company's "independent investigation" of the allegations in the PIBL

Complaint .

119 . On August 11, 2002, defendant Frank Magliochetti sent an email to an investor

discussing some of the fraudulent events alleged herein and attempting to shift the blame to others :

Wat [sic] is factual is swab and tsi and a host of alias's under mitch'sadvisory capacity sold over 12 m shares in a very short period of time .

I wonder why such sales took place right after the press releases ?

I wonder who wrote the press releases?

I wonder who drafted the addus agreements ?

I wonder who advised the company on how to deal with addus ?

I wonder who wrote the addus complaint against addus?

As for our cfo [Kuselius] he did not resign and I can not say anything

more.

As for off shore accounts the only person I understand to have one ismitch's wife.

120. On November 27, 2002, the Company filed for bankruptcy protection . SEC and

criminal investigations ensured as described below, and both a civil SEC action and a criminal case

have been brought relating to NCFE's Ponzi scheme . The Company announced on August 21, 2003 ,

that the SEC had served it with a subpoena in connection with a formal investigation .

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APPLICABILITY OF PRESUMPTION OF RELIANCE :FRAUD-ON-THE-MARKET DOCTRINE

121 . At al l relevant times, the market for e -MedSoft common stock was an efficient market

for the following reasons, among others :

a . E-MedSoft common stock met the requirements for listing, and at all relevan t

times was listed and actively traded , on the AMEX, a highly efficient market ;

b. As a regulated issuer , e-MedSoft filed periodic public reports with the SEC ;

C . E-MedSoft stock was followed by securities analysts employed by major

brokerage firms such as Sutro & Co ., who wrote reports which were distributed to the sales force and

certain customers of their respective brokerage firms. Each of these reports was publicly available

and entered the public marketplace .

d . E-MedSoft regularly issued press releases which were carried by nationa l

newswires . Each of these releases was publicly available and entered the public marketplace .

122 . As a result, the market for e-MedSoft securities promptly digested current informatio n

with respect to the Company from all publicly-available sources and reflected such information i n

e-MedSoft's stock price . Under these circumstances, all purchasers of e-MedSoft common stoc k

during the Class Period suffered similar injury through their purchase of stock at artificially inflate d

prices and a presumption of reliance applies .

NO SAFE HARBO R

123 . The statutory safe harbor provided for forward- looking statements under certai n

circumstances does not apply to any of the allegedly false statements pleaded in this complaint . The

specific statements pleaded herein were not identified as "forward-looking statements" when made .

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Nor was it stated with respect to any of the statements forming the basis of this complaint that actua l

results "could differ materially from those projected." To the extent there were any forward-lookin g

statements, there were no meaningful cautionary statements identifying important factors that coul d

cause actual results to differ materially from those in the purportedly forward-looking statements .

Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking

statements pleaded herein, defendants are liable for those false forward-looking statements because

at the time each of those Forward-looking was made the particular speaker knew that the particula r

forward-looking statement was false, and/or the forward-looking statement was authorized and/o r

approved by an executive officer of e-MedSoft who knew that those statements were false whe n

made .

CONTROL PERSON LIABILITY

124. As alleged above, NCFE filed for bankruptcy in November 2002 . NCFE was a

private company that was a controlling person of e-MedSoft .com by virtue of its large stock

ownership and board membership . According to defendant Frank Magliochetti : "In August of 2001 ,

we sold our company to E-MEDSOFT.COM which was, for all practical purposes, owned by NCF E

" (11 / 14/02 Tr. at 104) .

125 . NCFE built a multi-million dollar business out of buying patients' bills fro m

healthcare providers and selling them to investors as bonds called "asset-backed securities ." With

regard to e-MedSoft, NCFE purchased the Company 's receivables at a discount , providing

immediate cash to e-MedSoft. The FBI raided NCFE's offices in November 2002 in connection with

its criminal investigation ofNCFE. NCFE filed forbankruptcy in November 2002 and , accordingly,

is not named as a defendant herein .

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126. According to the Statement of Facts agreed upon by defendant Sherry L . Gibson, a

former Vice President and Director of Compliance of NCFE who pleaded guilty to conspiring to

commit securities fraud (U.S . v . Sherry L . Gibson), U .S. Dist . Court, N.D . Ohio), NCFE operated

as a financial service holding company, which, through its subsidiary corporations, purchased

accounts receivable from hospitals, nursing homes and other medical providers and concerns . (A

copy of the Statement of Facts is annexed hereto as Exhibit B) . NPF VI and NPF Xli were Ohio

corporations and wholly-owned subsidiaries of NCFE. (Statement of Facts, pp . 1-2) . Both NPF VI

and NPF XII were formed to purchase health care receivables and fund such purchases with the

proceeds from the offer and sale of health care receivables securitization program notes to investors.

As of June 30, 2002, NCFE claimed the net value of all receivables for NPF VI was $908,980,775

and for NPF XII, was $2,149,489,559 . (Id) . The Chase Manhattan Bank, and its successor JP

Morgan Chase Bank, acted as trustee for investors holding health care receivable securitization notes

issued by NPF VI . Bank One acted as trustee for NPF XII . investors . (Statement of Facts at 2) .

127. According to Sherry L.Gibson's Statement of Facts in connection with her guilty plea ,

she conspired beginning before May 17, 1995 up to and including at least August 29, 2001 with

seven or more executives and owners of NCFE and others to "defraud investors in health care

receivable securitization notes issued by NPF VI and NPF XII ." According to Gibson, "[t]he

conspirators furthered the ends of the conspiracy to defraud investors through several means,

including falsification of information in reports, creation of fraudulent documents to mislead auditors

and investors, transfer on a monthly basis of hundreds of millions of dollars between and among

bank accounts of NPF VI and NPF XII to deceive trustees and investors about balances in these

accounts, and execution of a Ponzi scheme to divert proceeds from the offer and sale of NPF VI and

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NPF X11 notes ." (Statement of Facts, pp. 2-3). A criminal information filed by the U .S. Attorney

for this District details 93 overt acts committed by conspirators in furtherance of the conspiracy . (A

copy of the information is annexed hereto as Exhibit Q .

128. NCFE used the cash from the purchased receivables of e-MedSoft and other health

care companies to pay interest and principal on the issued bonds . NCFE and Poulsen, however, ran

the business like a Ponzi scheme ; NCFE never had sufficient cash from purchased receivables to

fund the required bond payments . Poulsen and others , including defendant J .P . Morgan Chase & Co .

were also sued by Rebecca Parrett (a defendant herein and an 18% owner of NCFE), for running

NCFE as a Ponzi scheme .

129. Defendant Magliochetti testified that Poulsen would give him direct orders to divert

millions of dollars in accounts receivable :

Q. You would agree with me, Mr . Magliochetti, would you not, that theownership of Lance Poulsen and persons affiliated with him in MedDiversified created a serious conflict of interest ?

A. In what regard?

Q. Well, let's just take an example, Mr. Magliochetti . You said a little bit ago

when you were on direct examination that receivables that had already been

purchased by NPF XII were not the property of Med Diversi lied any more,correct?

A. I agree with that .

THE COURT: I'm sorry, you said you would agree with that` .?

THE WITNESS: I would agree to that . Up to 180 days, I would agree with

that . Anything over 180 days of course goes back to thecompany.

-54-

BY MR. ALEXANDER :

Q. So when you sell a receivable for Med Diversified to NPF XII, NPF XII owns

it, correct?

A. Up to 180 days .

Q. And during that 180 days, they are entitled to all the collections from that

receivable, isn't that true?

A. Yes, sir .

Q. Now, if Lance Poulsen talks to you on the telephone and says, Mr .Magliochetti , take the property of NPF XII and divert it to somebody else,that would be conflict of interest , wouldn't it, sir`?

A. Yes.

Q. And that's precisely what happened , isn't it ?

A. Would you give me a definition of `precisely what happened" ?

Q. Isn't it a fact that Mr. Poulsen directed you to call payors and dive rt propertythat was owned by NPF XII?

A. Yes, sir.

Q. And isn' t it a fact that Mr . Poulsen directed you to contact lock box banksand direct property that was owned by NPF XII?

A. Yes, sir.

Q. And isn't it a fact that you did in fact direct that to be done?

A. Yes, sir .

Q. How much money have you diverted of property that was owned by NPF XII,

sir?

A. I don' t have an exact number, but I can call and I can get it to you in threeminutes .

Q. It is many millions of dollars, isn't it, sir?

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A . If it is under 10, then it's many millions .

Q. Is it your testimony to this Court, having just filed schedules in thebankruptcy court, that you don't have any idea, sir, how much money youdiverted?

A. I didn't say I didn't have an idea. I basically said to you that I could callwithin three minutes and have a definitive answer for you . I don't have onthe top of my head how much was diverted .

Q. Would you tell the Court what your idea of about how much property youhave diverted that belongs to NPF XII ?

A. I would believe that it is less than ten million dollars, and I would also statethat we have a clear and accurate record and which [ instructed our treasurerto keep .

(1 1/14/02 Tr . at 95-97) .

130. The SEC has also filed a civil complaint in this District (SEC v . Brian Stucke , Case

No. C-2031161), alleging that Brian Stucke and other senior officers of NCFE defrauded investors

from at least 1999 to 2002 . According to the complaint, NCFE used its two subsidiaries, NPF V I

and NPF XII to defraud purchasers of the notes issued by these two subsidiaries . NCFE advanced

$1 billion to certain health-care providers without receiving eligible medical accounts receivable i n

return . According to the SEC, "[m]any of these advances were to health-care providers wholly o r

pa rt ly owned by several senior officials of [NCFE] ." (SEC complaint, para . 26). The strong

inference from defendant Magliochetti's testimony above is that e-MedSoft was among these related-

party health care providers . The SEC complaint also alleges that NCFE took steps to hide th e

reserve shortfalls from investors and others and regularly transferred funds between NPF VI and NP F

XII to mask reserve shortfalls up to $400 million . (Id., para . 27) . In addition, the SEC alleges tha t

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"senior [NCFE] officials misrepresented the status of the reserve accounts . . . ." Id ., para . 30. (A copy

of the SEC's complaint is annexed hereto as Exhibit D) .

131 . Because NCFE has been used as a Ponzi scheme -- as in fact defendant Parrett has

herselfalleged in her civil pleading -- defendant Poulsen and the other NCFE affiliates, Ayers, Ayers

LLC, Parrett and Barbara Poulsen, J .P. Morgan Chase & Co ., The Beacon Group, LLC and The

Beacon Group III Focus Value Fund, L .P., are not entitled to any claim of protection of corporate

separateness between them and NCFE . Their ownership ofNCFE, according to Parrett's complaint ,

was as follows : Parrett (18%) ; the Poulsens (38%) ; Ayers (18%) ; J .P . Morgan Chase/Beacon Grou p

(20%). Given its fraudulent conduct, NCFE's corporate separateness may be disregarded an d

liability imposed on these officers and principal owners of NCFE . Their use of NCFE to perpetrat e

a fraudulent scheme renders them liable to plaintiffs and other class members for NCFE 's acts .

Alternatively, Lance Poulsen and several of the other NCFE affiliates were also significan t

e-MedSoft stockholders, including Barbara Poulsen , Donald Ayers, Ayers, LLC, Parrett and

Cheyenne- Blaze, LLC . According to the Company's filings, the NCFE affiliates represented th e

"largest group of related stockholders" and thus had the "ability to in fluence the election of directors

and other important corporate transactions requiring stockholder approval ." During the Class Period ,

Lance Poulsen personally owned at least 12,056,500 shares of common stock or 8 .11 % of e-

MedSoft .

SCIENTER ALLEGATION S

132. As alleged herein, defendants acted with scienter in that defendants knew that th e

public documents and statements, issued or disseminated by or in the name of the Company wer e

materially false and misleading ; knew or recklessly disregarded that such statements or documents

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would be issued or disseminated to the investing public ; and knowingly and substantially

participated or acquiesced in the issuance or dissemination of such statements or documents a s

primary violators of the federal securities laws . As set forth elsewhere herein in detail, defendants ,

by virtue of their receipt of information reflecting the true facts regarding e-MedSoft and its business

practices, their control over and/or receipt of e-MedSoft's allegedly materially misleadin g

misstatements and/or their associations with the Company which made them privy to confidentia l

proprietary information concerning e-MedSoft were active and culpable participants in the fraudulen t

scheme alleged herein . Defendants knew and/or recklessly disregarded the falsity and misleadin g

nature of the information which they caused to be disseminated to the investing public . This case

does not involve allegations of false forward-looking statements or projections but instead involve s

false statements concerning the Company's business, finances and operations . The ongoing

fraudulent scheme described in this complaint could not have been perpetrated over a substantia l

period of time, as has occurred, without the knowledge and complicity of the personnel at the highes t

level of the Company, including the Individual Defendants .

133 . The Individual Defendants engaged in such a scheme to inflate the p rice of e-MedSoft

common stock in order to : (i) protect and enhance their executive positions and the substantia l

compensation and prestige they obtained thereby; and (ii ) enhance the value of their personal

holdings of e-MedSoft common stock and options .

134 . In addition, insiders engaged in the following sales of Company stock in amounts and

at times, that were highly suspicious :

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Seller Date SharesSales

Proceed s

TS1 Technologies and 11/20/01 700,000 $826,000Holdings, LLC(Beneficial owner of 10% or 12/31/01 366,000 $428,220 (usingmore) share price o f

$1 .17)

1/31/02 869,000 $1,147,080 (using asales price o f

S1 .32 )

LANCE K. POULSEN 1/8/02 6,969,600 Sales price(Beneficial owner of 10% or (Disposition unknownmore) Non Ope n

Market)

135 . In addition to these reported insider sales, TSl and SWAB Financial sold millions of

shares of e-MedSoft stock in June and July, 2001, as alleged above . (See Ex. A hereto) . The sales

were in SWAB' s name to mask true ownership of the securities. (See Healthcare Capital LLCv.

Healthmed, Inc . , Case No . C2-02-688 (S .D. Ohio) (Holschuh, J .) (Complaint, 11113, 8d) (Stein caused

SWAB Financial to file insider trading reports with the SEC relating to sales of e-MedSoft stock

under its former name, TSI, even after the name had been of ficially changed to SWAB Financial ,

LLC on June 28, 2001 to hide the extent to which SWAB Financial was trading in the e-MedSof t

shares it held) .

COUNT I

Against A ll Defendants for Violations of Section 10(b)of the Exchange Act and Rule 10b-5(b )

136. Plaintiffs repeat and reallege each and every allegation contained in the abov e

paragraphs, as if fully set forth herein . This claim is asserted against all Defendants .

-59-

137 . Defendants (a) deceived the investing public, including Plaintiffs and other Clas s

members, as alleged herein ; (b) artificially inflated and maintained the market price of e-MedSof t

(or Med Diversified) common stock ; and (c) caused members of the Class to purchase or otherwise

acquire e-MedSoft (or Med Diversified) common stock at artificially inflated prices .

138 . Defendants made untrue statements of material fact and/or omitted to state materia l

facts necessary to make the statements made not misleading, which operated as a fraud and decei t

upon the purchasers of e-MedSoft (or Med Diversified) common stock in an effort to maintai n

artificially high market prices for e-MedSoft (or Med Diversified) common stock in violation of

Section 10(b) of the Exchange Act and Rule I Ob-5(b) .

139. In addition , to the duties of full disclosure imposed on Defendants as a result of thei r

making of affirmative statements and reports, or participation in the making of affirmative

statements and reports to the investing public , Defendants had a duty to promptly disseminate

truthful information that would be material to investors in compliance with the integrated disclosur e

provisions of the SEC as embodied in SEC Regulation S-K (17 C.E.R. §229. 10 et sea . ) and othe r

SEC regulations, including accurate and truthful information with respect to the Company' s

operations and performance so that the market prices of the Company's publicly traded securitie s

would be based on truthful, complete and accurate information .

140. Defendants, directly and indirectly, by the use of means and instrumentalities of

interstate commerce and/or of the mails, engaged and participated in a continuous course of conduc t

to conceal adverse, material information about the Company's financial results, and busines s

operations, as specified herein . Defendants made, or participated in the making of, untrue statement s

of material facts and omitted to state material facts necessary in order to make the statements made

-60-

about the Company in the light of the circumstances under which they were made, not misleading,

as set forth herein .

141 . In addition, R . J . Gold is primarily liable for the false audit report it issued concernin g

Chartwell' s financial statements for the period of inception 2/23/00 to 6/31/01 . R . J . Gold audited

and participated in the preparation of the financial statements for this period which were include d

with R. J . Gold's consent in the Company's March 31, 2001 and June 30, 200I financial statement s

as alleged above .

142. Defendants had actual knowledge ofthe misrepresentations and omissions of materia l

facts set forth herein, or acted with deliberate reckless disregard for the truth in that they failed t o

ascertain and to disclose such facts, even though such facts were available to them .

143 . As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of e-MedSoft (or Me d

Diversified) common stock was artificially inflated throughout the Class Period . In ignorance of the

fact that the market price of e-MedSoft (or Med Diversified) common stock was artificially inflated ,

and relying directly or indirectly on the false and misleading statements made byDefendants, or upo n

the integrity of the market in which the securities trade, and the truth of any representations made

to appropriate agencies and to the investing public, at the times at which any statements were made ,

and/or on the absence of material adverse information that was known or with deliberate recklessnes s

disregarded by Defendants but not disclosed in public statements by Defendants, Plaintiffs and th e

other members of the Class purchased or acquired e-MedSoft (or Med Diversified) common stoc k

at artificially high prices and were damaged thereby .

-61-

144 . At the time of said misrepresentations and omissions , Plaintiffs and the othe r

members of the Class were ignorant of their falsity, and believed the false statements to be true. Had

Plaintiffs and the other members of the Class and the marketplace known of the true nature of th e

operations of the Company and the noncompliance with federal law, which were not disclosed b y

Defendants, Plaintiffs and the other members of the Class would not have purchased or acquire d

their e-MedSoft (or Med Diversified ) common stock or, if they had purchased or acquired such

securities, they would not have done so at the artificially inflated prices which they paid .

145 . By virtue of the foregoing, Defendants have violated Section i 0(b) of the Exchange

Act, and Rule I Ob-5(b) promulgated thereunder .

146 . As a direct and proximate result of Defendants ' wrongful conduct, Plaintiffs and th e

other members of the Class suffered damages in connection with their acquisition of e-MedSoft (or

Med Diversified) common stock .

COUNT 1 1

Against All Defendants for Violations of Section 10(b )Of the Exchange Act and Rule IOb -5(a) & (e) Promulgated Thereunder

147 . Plaintiffs repeat and reallege each and every allegation set forth above as if fully set

forth herein . This Count is asserted against all Defendants .

148 . During the Class Period, Defendants carried out a plan, scheme and course of conduc t

that was intended to and did : (i) deceive the investing public, including Plaintiffs and other Clas s

members, as alleged herein ; (ii) artificially inflate the market price of e-MedSoft (or Med

Diversified) common stock, and (iii) cause Plaintiffs and other Class members to purchase e-

MedSoft (or Med Diversified) common stock at artificially inflated prices .

-62-

149. In furtherance of this unlawful plan, scheme and course of conduct, defendant s

employed devices, schemes and artifices to defraud and engaged in acts, practices and a course of

business which operated as a fraud and deceit upon the investing public, in connection with the

purchase of e-MedSoft (or Med Diversified) common stock, in violation of Section 10(b) of the

Exchange Act and Rule I Ob-5(a) and (c) promulgated thereunder .

150. Defendants' fraudulent devices, schemes, artifices and deceptive acts, practices an d

course of business included the failure to disclose the related party transactions alleged above an d

the issuance of false and misleading financial statements as alleged .

151 . Defendants acted knowingly or with deliberate recklessness and for the purpose an d

effect of artificially inflating the price of the Company's common stock .

152 . The members of the Class reasonably relied upon the integrity of the market in whic h

the Company's common stock traded .

153 . Plaintiffs and the other members of the Class were ignorant of defendant's fraudulen t

scheme and unlawful course of conduct . Had Plaintiffs and the other members of the Class know n

of defendants' unlawful scheme and unlawful course of conduct, they would not have purchased o r

otherwise acquired e-MedSoft (or Med Diversified) common stock or if they had, they would no t

have purchased or otherwise acquired them at the artificially inflated prices they paid for such

common stock.

154. Plaintiffs and the members of the Class were injured because the risks tha t

materialized were risks of which they were unaware as a result of defendants' scheme to defraud a s

alleged herein .

-63-

155. By virtue of the foregoing, defendants violated Section 10(b) of the Exchange Act an d

Rule lOb-5(a) and (c) promulgated thereunder .

156. As a direct and proximate result of defendants' scheme to defraud and defendants '

unlawful course of conduct, Plaintiffs and the other members of the Class suffered damages i n

connection with their purchases of e-MedSoft (or Med Diversified ) common stock in an amount t o

be proven at trial .

157 . This Count is brought solely and exclusively under the provisions of Rule I Ob-5(a )

and (c) . Accordingly, Plaintiffs need not allege or prove that e-MedSoft (or Med Diversified), any

Individual Defendant or R . J . Gold made any misrepresentations or omissions of material fact fo r

which they may also be liable under Rule I Ob-5(b) and/or any other provisions of law .

COUNT II I

Violation Of Section 20(a) Of The Exchange ActAgainst All Defendants (Except R. J . Gold & Company, P.C.)

158. Plaintiffs repeat and reallege each and every allegation contained above . This Coun t

is asserted against all Defendants, except R. J . Gold & Company, P .C .

159. Defendants acted as controlling persons ofe-MedSoftand/or Med Diversified withi n

the meaning of Section 20(a) of the Exchange Act . By reason of their senior executive, Board

positions, or significant stockholdings they had the power and authority to cause e-MedSoft .com

and/or Med Diversified to engage in the wrongful conduct complained of herein .

160. By reason of such wrongful conduct, Defendants are liable pursuant to §20(a) of th e

Exchange Act. As a direct and proximate result of these defendants ' wrongful conduct , plaintiffs

-64-

and the other members of the Class suffered damages in connection with their purchases of e-

MedSoft .com and/or Med Diversified stock during the Class Period .

WHEREFORE, plaintiffs pray for relief and judgment , as follows :

Determining that this action is a proper class action and certifying plaintiffs as clas s

representatives under Rule 23 of the Federal Rules of Civil Procedure ;

2 . Awarding compensatory damages in favor of plaintiffs and the other Class member s

against all defendants, jointly and severally, for all damages sustained as a result of defendants '

wrongdoing, in an amount to be proven at trial, including interest thereon ;

3 . Awarding plaintiffs and the Class their reasonable costs and expenses incurred in thi s

action, including counsel fees and expert fees ; and

4. Such other and further relief as the Court may deem just and proper .

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury .

DATED: January 20, 2004

COOPER RIDGE & LANTINBERG

By : Is/ George RidgeGeorge Ridg e

200 W. Forsyth Street, Suite 1200

Jacksonville , FL 32202

Tel: (904) 353-6555Fax: (904) 353-755 0

-65-

KAPLAN FOX & KILSHEIMER LLPRobert N . Kaplan805 Third AvenueNew York, NY 10022

Tel: (212) 687-1980Fax : (212) 687-7714

VIANALE & VIANALE LLPKenneth J . VianaleFlorida Bar No . 16966 85355 Town Center Road, Suite 801

Boca Raton, FL 33486Tel: (561) 391-4900Fax : (561) 368-9274

CLARK, PERDUE , ROBERTS& SCOTT, L.P.A.

James E . Arnold471 East Broad Street, Suite 1400Columbus, OH 4321 5Tel: (614) 469-1400Fax: (614) 469-0900

Attorneys for Plaintiffs

-66-

CERTIFICATE OF SERVIC E

I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished,

via U.S. Mail or courthouse e-mail transmission (as noted below), this 20"' day of January, 2004,

to the parties listed below .

Notice will be electronically mailed to :

David Warren Alexander

Steven G. Brody

Bobby R . Burch field

Michael Hiram Carpenter

Sarah Loomis Cave

dalexander(dssd.com

sbrody&kslaw .com

b r h ii ld ii cov.c

carpenter(cyzclaw .co

cave &hugheshubb-ard.com

Michael Joseph Collins micnbickelbrewer .com

James J . Coster icoster(d)ssbb .com

Jeffrey J . Cotner icotner(a,gibbs-bnins .com

Dan L. Cvetanovich D n. vetanovi h a)baile cavali ri .com

Israel David davidistc)fthsj .com

Evan A. Davis edavisnae . cesh_.c_or_

William W . Deem wdeem&mcguirewoods .comc me uirewoo . m

Brian Edward Dickerson bdickerson (o),maLniire-schneider.com:

lifroni ma ire- chneider .c m

William A. Escobar wesc ar a kelle d e.comn anarella kelle e .commbloor vkelleydrve.com

Thomas Fellig i r.~felli l• w

-67-

Matthew L . Fornshell mlf(; kjk .com :csingerAwc .com :rcary&vwc.com

James M. Garland jgarlanda cov .eorn

Andrew L. Goldman bil alachowski(thbartlit-beck .com

Michael Proctor Graney rngraney stblaw .comKlonergan wstblaw.comKrussum(u),stblaw.comScrq)stblaw.com

Rc o ante epistori u s,&ktblaw. comD odacrc&stblaw co m

John Edward Haller ihaller &slk-law .com

Richard B . Harper rha er a~mccarter .com

Thomas Ross Hooper ross.hooperLaffriedfrank .com

Kevin Janus kevinjanusc i:quinnemanuel .com

David G . Jennings dayi4jetinings(Lisaacbrant.com; amyhooverLcvisaacbrant .com.

David Albert Kopech david(a kopech .com

John Bernard Kopf John.Kopf Thot pspnHine.com:Cindy.Wagner(cd.ThompsonHine .com

Harold G. Levison hlevisonC&kasowitz .com;ffigueroa@kasowi z.comckelly(kasowitz„cornnbeinstein @kasowitz .corn

Kyle A . Longergan klongergan@,,stblaw.com

Thomas Leslie Long tlong abakerlaw .com

Tiffany C . Miller tiffany .millerLi6bail ycavalieri .com

Timothy Edward Miller tem@isaaebrant .com: bask isaacbrant .com

-68-

William A . Miller bmiller(a williamamillerpllc .com

Joseph F . Murray murrav( ))mmmb .com

Susan S. Oosting susano(i.brownobr .com

Timothy S . Rankin tsr cuolrlaw .com

George R . Ridge gridgeL&attomeyjax .com

0. Judson Scheaf Jud.Scheaf;(u),ThompsonHine,com ;Nita .Hlanson(c ThompsonHine .com;Rhonda. VanArsdale Lo)ThompsonHine .com

P. Brian See bsee&ssd.com ;ch erez ssd.com

Barry G. Sher sherba(a)fthsj .eom

Jeffrey Q. Smith jgsmith(cvkslaw .com

Roger Philip Sugarman rsugarman (4keglerbrown .com

Michael Roy Szolosi mrs(wmcnamaralaw .us

Lawrence David Walker walker(&,taltlaw .com

William Chester Wilkinson Will iam. Wilkinson(c~Thom p unHine.comNita .Hanson@ThompsonHine .com

Via U . S. Mail to :

Acci/Allcare of Pennsylvania

215 Negley AvenuePittsburg, PA 1520 5

Robert M. CaryWilliams & Connolly725 Twelfth Street, N .W .

Washington , DC 20005

William K. DavisBell, Davis & Pitt, PA100 North Cherry Street , Suite 600Winston-Salem , NC 27120

Howard D . DuBosarDuBosar & Dalnick, PA3010 North Military Trail, Suite 210

Boca Raton , FL 3343 1

-69-

Home Medical Care of America, Inc .55 Carnegie Plaz aCherry Hill, NJ 08003

Sharon Kat zDavis Polk & Wardwell450 Lexington AvenueNew York, NY 1001 7

Robert J . MaddenGibbs & Bruns LL P110 Louisiana , Suite 5300Houston , TX 77002

William R . MaguireHughes Hubbard & Reed LLPOne Battery Park PlazaNew York, NY 10004-148 2

Brian P . Miller, Esq .Akerman SenterfittOne Southeast Third Avenue, 28" FloorMiami, Florida 3313 1

National Rehab of Florida8727 Beckingham PlaceOrlando , FL 3283 6

Barry OstragerSimpson Thatcher & Bartlett425 Lexington AvenueNew York, NY 10017-3954

R. Brian OxmanR. Brian Oxman Law Offices14126 E . Rosencrans Blvd .Santa Fe Springs , CA 90670

Lance K. PoulsenBarbara L. Poulsenc/o K.U.L.D. Partners, LLC1435-B Collingswood Blvd.Port Charlotte, FL 33948-105 8

Craig W. Porter42 Faxon StreetNewton , MA 02458

Daniel P . QuigleyCohen Kennedy Dowd & Quigley PC2425 Fast Camelback Road, Suite 1100Phoenix, AZ 8501 6

John K. VillaWilliams & Connolly725 Twelfth Street, N .W .Washington , DC 2000 5

Joseph C. Wasch888 East Las Olas Blvd ., Suite 210Ft. Lauderdale, FL 3330 1

David M. Wells, Esq .McGuire Wood s50 N. Laura St., Ste. 3300Jacksonville , FL 32202

Is/ George Ridge

-70-

EXHIBIT A

AgMAM&NT

I . The parties to this Agreement are TSl Technologies & Holdings, LLC (Sr)"Tand • Partnership 1 . Partnership ! is represented in this Agreement by San DiEgo AssetManagement ("SRAM") ,

2 . This Agreement is effective December 20,2001 .

3 . TSI hereby agrees to sell, and Partnership I agrees to buy, Six Million (6,000,000)shares of common stock in e-Med.Sot .corn (the "Shares) at a purchase price of S1 .15 (OneDollar) pea share.

4 . Partnersizip I will pay TSI for the Shares at the rate of 51 .725,000 per year forfour years, re flecting payment of the principal amount owed, plus interest at the rate of $172,500per year. Partnership I may choose to pro -pay any or all of tie amount owed , as long as it paysTSt a total of at least $1,897,500 per year for four years from the date of this Agreement.Partnership 1 may get credit towards the amount it owes TSI to the extent it pays any obligationsor debts of TSI at TSI's request .

5 . Partnership I agrees not to publicly sell more than f 50,000 shares per month. Tohelp monitor compliance with this rest riction in order for TSI to assure the existence of anorderly public capital marketand to protect such a market distribution of any or all of the Shares,TSl may, at its elcaion, make the physical transfers of the stock at various increments over theterm of this voutracL Neverth eless, to the extent TSl elects to niaintam physical possession ofany of the Shares afker the sffecGve date of this Agreement, it does so as the agent and nomineeof Partaetship [, which is agreed by the parties to be the legal owner of the Shares as of theeffective date of this Agreement. Partnershi p I may designate the transfere es of any portion ofthe Shares, and I SI will , as Partnership I's agent and nominee , transfer those shares to any suchtransferees at Partner. ip l's iegnesL

6. In the event a proper accounting of Partnership's public sales of the Shares is notwithin TSI' s discretion -- given In the ordinary course, TSI may within its discretion decide to

not transfer any and al l of the tranainiag shares hereunder . Notwithstanding the foregoing,Partnership I is and shall always bo the owner of the Shares hereunder.

7. The parties to this Agreement agree to keep it confidential except that it may bedisclosed to their attorneys and accountants as necessary io prepare proper tax retu rns, as setforth in paragraph & below, and as other vise required by taw .

y

>~ L

ij

1

S . The parties hereto acknowledge that other clients of SDAM may from time totime negotiate through SDAM or otherwise to purchase shares of common stock in e-MedSoft.com from TSL The pastier her to agree that SDAM will disclose this Agreement toany such clients, but that any such clime will be bound to a confidentiality provision identical tothe one set forth is paragraph 7 shove .

9. Any dispate rclaLing to this Agreanent will be resolved by the AmericanArbitratiott Association in Los Angekes. California, and the prevailing party will be entitled torecover attorney's Sees and costs incurred in the dispute .

TSI TECHNOLOGIES & HOLDINGS, L C

Name and Title

/xv

S bj~W ASSET MANAGEMENT on behalfof Peri>etitip I

ti

tijs~. .D jNamc and Ttle

.~ !

6"

0 0

1- The parties to this Agreement are TSI Tec&iologies A Holdings, L1.C {"TSI')and Part= rship II . Partnership 11 is rcprescnted in this A greement by Stn Diego AssetManagement C'SDAM").

2. This At moment is effective lasuary 23, 2001 .

3. TS1 hereby agrees to sell, and Partnership Il agrees to buy, Three Million OncHalf (3 ,500,000) shares of common stock in e-MedSoft.com (the "Shares") at a purchase prscc of$1 .20 (One Dollar and Twenty Cents) per share .

4. Partnership II will pay TSI for the Shams at the rate of $14 million per year forthree years. reflecting pmt of the principal amount owed, plus i serest at the rate of$140,000 per year. Partnership Ii may choose to pre-pay any or all of the amount owed, as longas it pays TSI a total of at least $1 .54 million per year for four years from the We of thisAgreemnent . Partnership 11 may get credit towards the amount it owes TSI to the extent it paysany obligations or debts of TSI at TSI's request.

5- Partnership U agrees not to publicly self more than 100,000 shares per month . Tohelp monitor compliance with this restriction in order for TSI to assure the existence of anorderly public capital ntsrket and to protcet such a market distribution of any or all of the Shores .TSI may, at its election, make the physical transfers of the stock at various increments over theteem of this cont ac-t. Nevertheless, to the extent TSJ elects to maintain physical possession ofany o the. Shares after the effective dote of this Agreement, it does so as the agent and nomineeof Partnership 11, which is agreed by the parties to be the legal owner of the Shares as of theeffective date of this Agreement . Partnership If may designate the transferees of any portion ofthe Shares, and TS1 will, as Partnership Il's agent and nominee, transfer those shares to any suchtnmsferees at Partnership II's request

6. In the event a proper accounting of Partnership 's public sales of the Shares is not- within TSl' s discretion - givens an the ordinary course , TSi may within its discretion decide tonot transfer any and all of the remaining shares hereunder . Notwithstanding the foregoing,Partnership It is and shall always be the owner of the Shares hereunder .

7 . The parties to this Agreement agree to keep it confidential except that it may be'•- disclosed to their attorneys and accountants as nee essary to prepare proper tax r rns, and as

otherwise required by law .

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8. The pasties hero acknowledge that other clients of SRAM may from time totime negotiate trough SDAM or otherwise to parchme shares of common stock its e-MedSofi care from TSL The pies hereto agree that SDAM w W disclose this Agreement toany szech clients, but that any rich cheat will be howl to a confidentiality provision identical tothe one set forth in paragraph 7 above.

9_ Any dispute relating to this Agreement will be resolved by the AmencsnArbitration Association in Los Angeles, CaliEomia, and the prevailing pony will be entitled torecover attorney's fees and costs incurred in the dispute .

Tai TECHNOLOGl1S A HOLDINGS, LC

By :Name and Titl e

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SAN Dt O ASSET MANAUi MENT on behalfof Partnership F[

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AGR€YMNT

1 . The patties to this Agreement are TSI Technologies & Holdings , LLC (TSI'")and - Partnership III - Partnership III is represented in this Agreement by San Diego AssetManagement ("SDAM') .

2. This Agreement is effective February 5, 2001 .

3 . TSI hereby agrees to sell, and Partnership III agrees to buy. One Million One Half(1,500,000) shares of common stock in e-MedSoft .com (the "Shares ") at a purchase price ofS1 :20 (One Dollar and Twenty Cents) per share .

4 . Partnership III will pay TSI for the Shares at the rate of $600 ,000 per year fortree yew, reflecting payment of the principal amount owed, plus interest at the rate, of 560.000per year. Pa rtnership III may choose to pee-pay any or all of the amount owed, as long as it paysTSI a total of at least $660 ,000 per year for three years from the date of tIde Agreement .Partnership III may get credit towards the amount it owes TSI to the extent it pays anyobligations or debts of TSI at TSI's request .

5 . Partnership Tit agrees not to publicly sell more than 60,000 shares per month . Tohelp monitor compliance with this restriction in order for TSI to assure the existen ce of anorderly public capital market and to protect s uch a market distribution of any or all of the Shares,TS1 may, at its election. make the physical transfers of the stock at various increments over theterm of this contract Nevertheless, to the extent TSI elects to maintain physical possession ofany of the Shares after the effective date of this Agreement, it does so as the agent and nomineeof Partnership III, which is agreed by the parties to be the legal owner of the Shares as of theeffective date of this Agreement Partnership Ili may designate the transferees of any portion ofthe Shares, and TSI will , as Partnership III's agent and nominee , transfer those shares to anysuch transferees at Partnership ill's request.

6 . In the event a proper accounting of Partnership's public sales of the Shares is notwithin TSI's discretion -- given in the ordinary course , TSI may within its discretion decide to

not transfer any and all of the remaining shares hereunder. Notwithstanding the foregoing,Partnership III is and shall always be the owner of the Shares hereunder.

7. The parties to this Agreement agree to keep it confidential except that it may bedisclosed to their attorneys and accountants as necessary to prepare proper tax returns, and asotherwise required by law.

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S . The parties hereto acknowledge that other clients of SDAM may from time totime negotiate tlxough SOAM or otherwise to purchase shares of common stock in e-MedSo&oom From TSL The parties hereto agree that SDAM will disclose this Agreement toany such clients, but that any such client will be bound to a wni>dentislity provision identical tothe one set forth in paragraph 7 above.

9. Any dispute relating to this Agreement will be resolved by the AmericanArbitration Association in Los Angeles, California, and the prevailing party will be untitled torecover attorney's fees and costs incurred in the dispute .

"1S1 TEA.- OLOGIES & HOLDIN , LL.Cw

By: 441Name and Title

A'AL-Visq. .SAND ASSET MAN GEMENT on behalfof Pa rtnership II I

By: .( ter r rt _w N" and Title

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1. The parties to this Agreement are TS1 Technologies & Holdings, LLC M. 11and -Partnership IV. Partnership IV is r efmsented in this Agreement by San Diego AssetManagement C'SDAM").

z_ This Agreement is effective February 19. 2WI .

3 . 'ICI hereby agrees to sell, and Part rship IV agrees to buy, Two Million(2,000,000) shares of common stock in e•McdSoft com (the "Shares") at a purchase price of51 .35 (One Dollar and Thirty Five Cents) per share .

4 . Partnership IV wilt pay TSI for the Shares at the rate of $900,000 per year forthree years, reflecting payment of t e principal amount owed, plus interest at the rate of S90,000per year. Partnership IV may choose to pre-pay any or all of the amount owed, as long as it paysTSl a total of at least $990,000 per year for three years from the date of aft Agreement-Partnership IV may get credit towards the amount it owes T81 to tLr wont ii pays anyobligations or debts ofTS1 at TSI's request.

5 . Partnership IV agrees not to publicly sell more than 80,000 shares per month . Tohelp monitor compliance with ibis ressrictic n in order for TS] to assure the exdsience of anorderly public capital market and to protect such a market distribution of any or all of the Shares,TSI may, at its election, make the physical transfers of the stock at various in is over theterm of this contract. Nevertheless, to the extent '1St elects to maintain physical possession ofany of the Shares after the effective date of this Agreement, it does so as the agent and nomineeof Partnership IV, which is agreed by the parties to be the legal owner of the Shares as of theeffective date of this Agreement. Pa ership IV may designate the transfetets of any portion ofthe Shares, and TSl will, as Partnership IV's agent and nominee, transfer those shares to anysuch transferees at Partnership IV's request.

6. In the event a proper accounting of Partnership ' s public sales of the Shares is notwithin TSI' s discretion - given in the ordinary course, TS1 may within its discretion decide to

not transfer any and all of the remaining shares hereunder. Notwithstanding the foregoing,Partnership IV is and shall always be the owner of the Shares hereunder .

7 . The parties to this Agreement agree to keep it confidential except that it may bedisclosed to their attorneys and accountants as necessary to prepare proper tax returns, and asotherwise required by law.

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8 . The panics hereto acknowledge that other clients of SOAM may from time totime negotiate through SDAM or otherwise to pwchasc shares of common stock in e.MedSoft .com from TSI. The parties hereto agree that SDAM vilt disclose this AgTeennent toany such clients, but that any such client will be bound to a confidentiality provision identical tothe one set forth in paragraph 7 above .

9 . Any dispute relating to this Agreement will be resolved by the AmericanArbitration Association in Lets Angeles, California, and the prevailing party Will be entitled torecover atto rney's fees and costs incunvd in the dispute .

TSI TEC OLOGIES & HOL©[NC LLC

Name and Ti tle .

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1 . The parties to this Agieen cnt are TSI Technologies & Holdings, LLC ("TSI")and - Pa rtnership V . Partnership V is represented in this Agreement by San Diego AssetManagement ("SDAM").

2 . This Agreement is effective February 27.

3 . TS1 hereby agrees to sell, and Partnership V agrees to buy, One Million(1,000,004) shares of common stock in e-MedSoft .com tthe "Shams") at a purchase price of$1 .50 (One Dollar and Fifty Cents) per share .

4 . Partnership V will pay TS1 for the Shares at the rate of $750 .000 per year for twoyears, reflecting payment of the principal amount owed, plus interest at the rate of $75,000 peryear. Partnership V may choose to pre-pay any or all of the amount owed, as long as it pays " .'S1a total of of least $825,000 per year for two years from the date of this'Agreemcnu Partnership Vmay get cred:i towards the amount it owes TSI to the extent it pays any obligations or debts ofTS1 at TSI's request .

S . Partnership V agrees not, to publicly sel l more than 50,040 shares per month. inhelp monitor compliance with this restriction in order for TSI to assure the existence of anorderly public capital market and to protect such a market distribution of any or all of the Shares,TSI may, at its election , make the physical transfers of the stock at wirious increments over theterm of this contract. Nevertheless, to the extent TSI elects to maintain physical possession ofsay of the Shares after the cfcc ti ve date of this Agreement, it doe:i so as the agent and nomineeof Partnership V, which is agreed by the parties to be the legal owner of the Shares as of theeffective date of this Agreement. Partnership V may designate the transferees of any por tion ofthe Shares, and TS1 will, as Partnership V's agent and nominee, transfer those shares to any sucht Sferces at Partnership V's request_

6. In the event a proper accounting of Partnership's public sales of the Shares is not- within TSI's discretion - given .in the ordinary course, TS) may within its discretion decide tonot transfer any and all of the remaining shares hereunder . Notwithstanding the foregoing,Partnership V is and shall always be the owner of the Shares hereunder .

7 . The parties to this Agreement agree to keep it confidential except that it may bedisclosed to their attorneys and accountants as necessary to prepare proper tax returns, and asotherwise required by law .

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S. The parties hereto acknowledge that other clients of SDAM may f time totime negotiate through SDAM or otherwise to purchase shares of common stock in e-MedSoft .corn from TSI. The parties hereto agree that SDAM will disclose this Agreement toany such clients, but that any such diem will be bound to a confidentiality provision identical tothe one set forth in paragraph 7 above.

9. Any dispute relating to this Agreement will be resolved by the AmericanArbitration Association in Los Angeles . California, and the prevailing party will be entitled torecover attorney's fees and costs incurred in the dispute.

TSS TIrC LOGIES & HOLDING LLC

13r.Naive and Title '

SANS &CVWET MANAGEMENT on behalfo1'ParinershI V

By: t , If '~tc~+LVN.me and li e

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EXHIBIT B

IN THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

UNITED STATES OF AMERICA

VS . No.

SHERRY L . GIBSON

STATEMENT F FACTS

The United States of America and SHERRY L. GIBSON , the defendant, agree that the

following statement provides a factual basis for her plea of guilty in this case, pursuant to

Fed.R.Crim.P. 1 I(b)(3) :

National Century Financial Enterprises, Inc., or NCFE, was an Ohio corporation ,

headquartered in Dublin, Ohio, that operated as a financial service holding company, which, through

its subsidiary corporations, purchased accounts receivable from hospitals, nursing homes and other

medical providers and concerns. NCFEadvertised that its principal business was financing health

care providers through the purchase of their accounts receivable payable by private insurers and

public health care programs such as Medicare and Medicaid, and described itself in promotional

statements as the leading supplier of working capital to the medical industry in the United States .

NPF VI, Inc ., orNPF VI, was an Ohio corporation and a wholly-owned subsidiary ofNCFE .

NPF VI was formed for the stated purpose ofpurchasing health care receivables and finding such

purchases with the proceeds from the offer and sale of securi ties, known as health care receivable s

securitization program notes, to investors . As of June 30, 2002, NCFE claimed the net value of all

purchased receivables for NPF VI was $908 ,980,775. -

NPF XII, Inc., orNPF XII, also was an Ohio corporation and a wholly -owned subsidiary of

NCFE. Like NPF VI, NPF XII was formed for the stated purpose of purchasing health care

receivables and fimding such purchases with the proceeds from the offer and sale of health care

receivables securitization program notes to investors . As of July 1, 2002, NCFE claimed the net

value of all purchased receivables for NPF XII was $2,149,488,559 .

The Chase Manhattan Bank acted as a trustee for investors holding health care receivable

securitization notes issued by NPF VI. Bank One acted as the trustee for NPF XII investors .

National Premier Financial Services , Inc. was another subsidiary ofNCFE that purportedly

provided administrative services for heal th care receivables purchases by NPF VI and NPF XII .

Several accounting firms, including PricewaterhouseCoopers and Deloitte & Touche, among

others, were retained by NCFE to perform audits or other accounting procedures for the company

and its subsidiaries.

Defendant SHERRY L. GIBSON was employed by NCFE in several management an d

executive-level positions . Most recently, she worked as the Executive Vice-President of NCFE's

Compliance Department . Beginning in 1992, SHERRY L . GIBSON was responsible for the

issuance of monthly investor reports to the NPF VI and NPF XII trustees and to investment rating

companies such as Fitch IBCA, Inc . and Duff & Phelps Credit Rating Co.

Beginning before May 17, 1995, SHERRY L. GIBSON conspired with at least seven

executives and owners of NCFE and others to defraud investors in health care receivable

securitization notes issued by NPF VI and NPF XII . The conspirators furthered the ends of the

conspiracy to defraud investors through several means, including falsification of information in

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reports, creation of fraudulent documents to mislead auditors and investors, transfer on a monthly

basis of hundreds of millions of dollars between and among bank accounts of NPF VI and NPF XII

to deceive trustees and investors about balances in those accounts , and execution of a Ponzi scheme

to divert proceeds from the offer and sale of NPF VI and NPF XII notes .

NPF VI started operations on May 17,1995 . The very first investorreport for NPF VI wa s

issued on June 21, 1995, and contained false financial information . In the months and years

following, SHERRY L. GIBSON, with guidance from several of her co-conspirators, caused

multiple investor reports for both NPF VI and NPF XII to be prepared and sent to trustees and

investment rating companies, knowing that these investor reports contained false financial

information . Many of these fraudulent investor reports were transmitted to recipients by interstate

facsimile communication from Dublin, Ohio.

From at least the beginning of 1999, SHERRY L. GIBSON and her co-conspirators

exchanged memoranda and electronic messages, recording their plans for creating false records and

furthering their efforts to deceive auditors, rating companies and investors . Some of the memoranda

described a scheme in which new investor money would be used to cover millions of dollars in

existing shortages in reserve and equity accounts, rather than to purchase assets as represented to

the new investors . Other memoranda described how multimillion dollar, critically timed wire

transfers created the illusion that required funds were held in various NPF VI and NPF XI[ bank

accounts .

The Information filed in this case details ninety-three (93) overt acts, among others,

committed by the conspirators in furtherance of the conspiracy . SHERRY L. GIBSON reviewed

the government's evidence pertaining to these overt acts and confirmed that each one occurred . One

-3-

specific overt act occurred on or about August 29, 2001, when SHERRY L. GIBSON sent a

confidential memorandum to an individual identified in the Information as Conspirator A regarding

NPF XII Series 2001-3 notes, in which SHERRY L . GIBSON advised Conspirator A, in pertinent

part :

As you may expect, we are having problems generating the poolstatistics for the new series in NPF XII. Here's the problem :

To pass the collateral coverage test in NPF XII , we have beenadding receivables to the calculation in the investor report.The dollar amounts in the reserve accounts are fixed, sowithout cash , the only other way to pass the test is additionalreceivables .

2. Due to the continual shortage of cash in the reserves, theinvestor reports, therefore , have OVERSTATED thereceivables compared to the actual balances in the AS400and/or fending systems .

3. The static pool information roughly matches the investorreport data for the last eighteen (18) month period. Weattempt to have the static pool data reflect each monthlyreceivables balance in the investor report .

OK, so now we have a reported receivables balance we have to matchin the static pool data. While the actual balances in NPF XII arecloser to $1 .489 billion, the receivables balance in the currentinvestor report for NPF XII is $2,000,382,873 . This means we haveto add receivables on a Seller-by Seller basis in the static pool inorder to match the current investor report for NPF XII.

APPkOVED :

SHERRY L. GIBSON DALE E. WILLIAMS, JR. (0020094)Defendant Assistant United States Attorney

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TERRY K. SHERMAN, Esq. DOUGLAS W. SQUIRES (0073524)Attorney for Defendant Assistant United States Attorney

EXHIBIT C

IN THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

UNITED STATES OF AMERICA No .

VS .

SHERRY L . GIBSON

15 U.S .C. § 77q(a)15 U.S .C . § 77x18 U.S.C. § 218 U .S.C. § 37 1

INFORMATIO N

THE UNITED STATES ATTORNEY CHARGES :

COUNT1

1 . From on or before May 17, 1995, and continuing thereafter up to and including Jul y

24, 2002, in the Southern District of Ohio and elsewhere , SHERRY L. GIBSON, the defendant, and

other persons, whose identities are known and unknown to the United States but who are not named

as defendants herein, did unlawfully, willfully, and knowingly conspire, combine, confederate, and

agree together and with each other to use means and instruments of transportation and

communication in interstate commerce for the purpose of fraud and deceit in the offer and sale o f

securities, in violation of 15 U.S.C. §§ 77q(a) and 77x and 18 U.S.C. § 2.

2 . At all relevant times,

2A. National Century Financial Enterprises, Inc ., hereinafter referred to as NCFE, was

an Ohio corporation, headquartered in Dublin, Ohio, that operated as a financial service holding

company which, through its subsidiary corporations, purchased accounts receivable from hospitals,

nursing homes, and other health care providers and medical concerns , hereinafter individually

CE IVEDSEP - g 2003

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referenced without further identification as Seller.

2B. SHERRY L. GIBSON, the defendant, was employed by NCFE in severa l

management and executive-level positions.

2C . NPF VI, Inc., hereinafter referred to as NPF VI, was an Ohio corporation and a

wholly-owned subsidiary ofNCFE. NPF VI was formed for the stated purpose ofpurchasing health

care receivables and funding such purchases with proceeds from the offer and sale of securities, that

is, health care receivables securitization program notes .

2D. NPF XII, Inc., hereinafter referred to as NPF XII, was an Ohio corporation and a

wholly-owned subsidiary of NCFE. NPF XII was formed on February 22, 1999, as the successor

entity to NPF VIII, Inc ., for the stated purpose of purchasing health care receivables and funding

such purchases with proceeds from the offer and sale of securities, that is, health care receivables

securitization program notes .

2E. National Premier Financial Services, Inc. was an Ohio corporation and a wholly-

owned subsidia ry ofNCFE that purportedly acted as an agent providing administrative services for

the health care receivables purchased by NPF VI and NPF XII.

2F. The Chase Manhattan Bank, and it successor entity also known after November 10,

2001 as JP Morgan Chase Bank, was a financial institution that acted as a trustee for investors

holding health care receivables securitization program notes issued by NPF VI .

2G. Bank One, NA, hereinafter referred to as Bank One, was a financial institution that

acted as a trustee for investors holding ofhealth care receivables securitization program notes issue d

by NPF 3GI .

2H. Fitch IBCA, Inc., hereinafter referred to as Fitch, and Duff& Phelps Credit Rating

Co., hereinafter referred to as DCR, were companies that each rated for investors one or more of th e

several series of health care receivables securitization program notes issued by NPF VI or NPF 7G[,

21. Several individuals, among others, identified respectively herein as Conspirator A

through Conspirator G, were executives at and /or owners of NCFE .

2

2J. Coopers & Lybrand, and its successor entityknown as PricewaterhouseCoopers, wa s

a national auditing firm engaged by NCFE to perform audits and agreed upon procedures .

2K. Deloitte & Touche LLP, hereinafter referred to as Deloitte & Touche, was a national

auditing firm engaged by NCFE to perform audits .

MANNER AM MEANS BY MUCHTHE CONSPIRACY WAS OUT

3. The manner and means by which the conspiracy was sought to be accomplished

included, among others, the following :

3A. Inclusion of untrue statements of material facts in reports, which untrue statement s

were designed to and operated to deceive, mislead and defraud investors in the offer and sale o f

securi ties, that is, health care receivables securitization program notes .

3B. Creation of false and fraudulent documents relating to the financial condition o f

NCFE, and related parties and entities , which false and fraudulent documents were designed t o

deceive and mislead auditors and to defraud investors in the offer and sale of securities, that is ,

health care receivables securitization program notes .

3C. Transfer of money between and among bank accounts of NPF VI and NPF XII, to

project an appearance that reserve accounts possessed required funds, which transfers of mone y

were designed to deceive and mislead trustees and to defraud investors in the offer and sale o f

securities, that is, health care receivables securitization program notes .

3D. Execution of a scheme and artifice to defraud in the offer and sale of securities, tha t

is, health care receivables securitization program notes, by using proceeds from the offer and sal e

of such notes for purposes other than for financing purchases of health care receivables .

OVERT ACTS

4. In furtherance of the conspiracy, and to effect the objects thereof, at least one of th e

following overt acts, among others , was committed in the Southern District of Ohio:

4A. On or about June 21 , 1995, an investor report was prepared for NPF VI ,

3

Determination Date May 31,1995, the first such report for NPF VI, which contained false financia l

information .

4B. On or before August 21, 1995, SHERRY L. GIBSON, the defendant, wrote

Conspirator A that arbitrary numbers were included on an investor report for NPF Vi . Conspirator

A responded to SHERRY L. GIBSON, the defendant, with a handwritten: "OK."

4C. On or before September 22, 1995, SHERRY L. GIBSON, the defendant, wrote

Conspirator A and advised that certain numbers included on an investor report for NPF VI wer e

arbitrary and not correct and other numbers were fabricated- Conspirator A responded to SHERRY

L. GIBSON, the defendant , with a handwritten: ` OK . "

4D. On or before October 23 , 1995, SHERRY L. GIBSON, the defendant, advised

Conspirator A that certain numbers to be included on an investor report for NPF VI were arbitrary

and not correct . Conspirator A responded to SHERRY L . GIBSON, the defendant, with

handwritten: "OK" and "OK with notes," which notes suggested a method for manipulating data .

4E. On or about November 24,1997, SHERRY L. GIBSON, the defendant, caused to be

prepared, and Conspirator A did sign , an investor Report for NPF'VI, Determination Date October

31, 1997, which contained false financial information .

4F. On or about January 20, 1998, an employee of NCFE wrote a memorandum to

SHERRY L. GIBSON, the defendant, and Conspirator D, which memorandum was copied to

ConspiratorA,Conspirator B, Conspirator C, and several employees ofNCFE, not identified herein,

in which the writer confirmed both thatNCFE had created a Special Location"99" in its accounting

-system for accounts receivable that were purchased but which were not eligible for its programs and

that Special Location "99" numbers would be incorporated into monthly investor reports.

4G. On or about January 23, 1998 , SHERRY L . GIBSON , the defendant , caused to be

prepared, and ConspiratorA did sign, an Investor Report forNPFVI, DeterminationDate Decembe r

31, 1997, which contained false financial information.

4H. On or about August 13, 1998, at 10 :07 a .m., SHERRY L. GIBSON, the defendant,

4

caused to be transmitted by facsimile from Dublin, Ohio to DCR in Chicago, Illinois, a copy of th e

NPF VI Investor Report for May, 1998, and the following promotional statement on the facsimile

cover sheet :

Tid Bit : NCFE has been the Program Sponsor on receivablepurchasing programs totaling over $1 billion. With our 1997transactions , we exceeded the $1 billion mark in assets which clearlyestablishes us as the nations leading supplier ofworking capital to themedical industry.

41. On or about August 21, 1998, SHERRY L. GIBSON, the defendant, caused to be

prepared, and Conspirator A did sign, an Investor Report for NPF VI, Determination Date July 31 ,

1998, which contained false financial information .

4J. On August 21, 1998, SHERRY L. GIBSON, the defendant , caused to be transmitted

by facsimile from Dublin, Ohio to The Chase Manhattan Bank in New York, the NPF VI Investo r

Report for July, 1998, which contained false financial information .

4K. On or about September 21,1998, SHERRY L . GIBSON, the defendant, caused to b e

prepared, and Conspirator A did sign , an investor Report for NPF VI, Determination Date August

31, 1998, which contained false financial information .

4L. On orabout September23,1998, at 1 :10 p.m, SHERRY L. GIBSON, the defendant,

caused to be transmitted by facsimile from Dublin, Ohio to DCR in Chicago , Illinois, copies of the

NPF VIII Investor Report for July, 1998, and the NPF VI Investor Report for August, 1998, which

contained false financial information .

4M. On or about September 23,1998, at 1 :19 p.m., SHERRYL. GIBSON, the defendant,

caused to be transmitted by facsimile from Dublin , Ohio to The Chase Manhattan Bank in New York

a copy oftheNPF'VI Investor Report for August, 1998, which contained false financial information.

4N. On or about October 22, 1998, SHERRY L . GIBSON, the defendant, caused to b e

prepared , and Conspirator A did sign, an Investor Report for NPF VI, Determination Date

September 30, 1998, which contained false financial information .

40. On or about October 22, 1998, at 7:55 p .m., SHERRY L. GIBSON, the defendant,

caused to be transmitted by facsimile from Dublin, Ohio to Fitch in New York, a copy of the NPF

VI Investor Report for September, 1998, which contained false financial information .

4P. On or about October 22, 1998, at 8 :04 p .m., SHERRY L. GIBSON, the defendant,

caused to be transmitted by facsimile from Dublin, Ohio to The Chase Manhattan Bank in New

York, a copy of the NPF VI Investor Report for September , 1998, which contained false financia l

information.

4Q. On or about December 2,1998, an employeeofNCFE , not identified as a conspirator

herein, sent an email message to Conspirator B, with copies to Conspirators A and D, which

provided, in pertinent part :

I would like to meet with you to discuss strategies for presentingLocation 99 A/R to the auditors . It would be optimal if we couldprovide the auditors with specific information as to what eachPractice's Location 99 represents (Financial Class/Aging) and whywe believe it to be collectable. In the event that Location 99 isdeemed uncollectible, we will need to have a strategy in place forreplacing that A/R with good A/R or reducing our exposure in someother manner. Please let me know when you would be available todiscuss this .

On or about December 7, 1998, Conspirator B responded to the email message with a handwritte n

note, with copies to SHERRY L. GIBSON, the defendant, and an employee of NCFE not named

herein, and scheduled a meeting for December 15, 1998, at 2 :00 pm.

4R. On or about December 21, 1998, SHERRY L. GIBSON, the defendant , caused to be

prepared, and Conspirator A did sign, an Investor Report forNPF VI, Determination Date Novembe r

30, 1998, which contained false financial information .

4S. On or about February 11, 1999, SHERRY L . GIBSON, the defendant, sent a

memorandum on paper watermarked "For Internal Use Only" to Conspirator B, with copies to

Conspirator A, Conspirator C, and Conspirator E, regarding random audit of investor reports . The

memorandum provided, in pertinent part :

For 1998, PriceWaterhouseCoopers auditors have selected thefollowing months for random audit of the investor reports :

NPF VIII February 1998 . . .

Attached is a copy ofthe February 1998 investor report for NPF VIII .Please note how the sections in the report are divided; each section'sdata is tested by the auditors . I have also provided a copy of theagreed upon procedures performed by the auditors for this randomaudit (titled "Exhibit I") . Each section heading within the agreedupon procedures directly corresponds to a section within the investorreport .

I know that the random audit is a necessary requirement for thesecuritization(s) ; however, due to our business practices, it takesseveral weeks of preparation before the audit can be scheduled . Thepreparation time is not due to gathering copies of reports, obtainingfile copies, etc ., the delay is due to the necessity of CREATING thebackup that matches the investor report .

It has been necessary to modify/edit/change the original receivablesdata from the AS400 for investor reporting . Due to advances with nocollateral and high volumes of defaulted, the amount of eligiblereceivables aged 0-180 days varies significantly from the OutstandingPurchase amount (the amount actually funded to our clients) . Thismeans that we are UNDERcollateralized in all portfolios and theinvestor report numbers are adjusted in order to meet the defaulttriggers .

Therefore, whenever the investor reports are audited we have tocreate special reports that reflect the numbers reported which againdiffer significantly from the receivables activity actually posted andhoused within the AS400.

4T. On or about February 17, 1999, SHERRY L . GIBSON, the defendant, sent a

memorandum to Conspirator B, in which she stated :

4 . Status o NPF VI reserves is dismal. Seller Credit Reserveshould be approximately $38.8 million , actual balance isapproximately S 10 .6 million. Best estimate ofthe closing forNPF VI Series 1999- 1 is March 31, 1999 -- this meansproblems with February 1999 investor reports due tocontinued pillage of reserves for funding. I have attached anexample of a "compliance alert" that I plan to send -- OK?

4U. On or about February 17, 1999, SHERRY L. GIBSON, the defendant, sent a

document, captioned "NPF VI **Compliance Alert** Seller Credit Reserve is NON-

COMPLIANT," to Conspirator B, and maintained a file copy that contained the following

handwritten note:

FOR INTERNAL USE ONLYDISTRIBUTION : [Conspirator A], [Conspirator C], [Conspirator B], [Conspirator El, S . Gibson

* * DO NOT COPY * *

4V. On February 22 , 1999, Conspirator B and Conspirator C caused to be filed in the

Office of the Secretary of State of Ohio a Certificate ofAmend ment to Articles of Incorporation of

NPF VIII, Inc ., by which the name of the corporation was changed to NPF XII, Inc ., thus creating

NPF XII .

4W. On or about February 25, 1999, SHERRY L. GIBSON, the defendant, sent a

memorandum on paper watermarked "Confidential" to Conspirator A, Conspirator B, and

Conspirator C, with copies to Conspirator E and an employee ofNCFE, not identified herein, which

provided, in pertinent part:

1 . NPF VI is $45,000,000 SHORT in reserves . This shortage isdue to the funding of.[Seller] from reserves as well as funding to[Seller] and to. [Seller] .

We are unable to move monies between the books to "fix"this problem. NPF VI Series 1999-1 is not scheduled to close untilmonth end March 1999 . Another reason for the shortage is due to thelack of collections from [Seller] and/or [Seller] even though wecontinue proforma funding on a weekly basis .

Please advise -- how can we have an investor report (the onewe will have to distribute right before the next series) with$45,000,000 shortage in reserves? . . .

We are creative with month end and the investor reports -- but this isbeyond our capability to create. This is a crisis -- we need help !

4X. On or about March 10,1999, Conspirator A, acting as an officer ofboth NPF XII an d

National Premier Financial Services, Inc ., entered into an agreement with Bank One, acting a s

Trustee, by executing a NPF XII Health Care Receivables Securitization Program Notes Maste r

Indenture .

4Y. On or about March 18, 1999, Conspirator A directed SHERRY L. GIBSON, the

defendant, not to forward information on "advance funding" to PricewaterhouseCoopers .

4Z. On March 22,1999, SHERRY L . GIBSON , the defendant, transmitted by facsimile

to Conspirator A, at a location in Florida, and to Conspirator B, at a location in Arizona, a draft NP F

VI Investor Report for February, 1999, and a memorandum, also copied to Conspirator C, that

explained problems with the draft report, which problems were specifically described, in pertinent

part , as:

4. The Specified Equity Account Balances are NOT incompliance. The actual balances are $40,064,228 whereas thespecified balance is calculated as $56,788,096 . (see Section Six onpage 3)

The shortages in the Equity Account and the Seller Credit Reserveaccount are due primarily to using reserve dollars for fundingthroughout the month of February 1999 for special fundingcircumstances such as the release of the initial funding for [Seller]from reserves. The cash shortage in NPF VI can also be attributed tolack of cash collections on the [Seller} and [Seller] and the advancefundings for [Seller] and [Seller].

During our telephone conversation this morning, you requested thatthe investor report be modified to show "in transit" cash for theEquity account and the Seller Credit Reserve ; you had also requestedthat the amount of purchases be decreased . If we add $29,000,000 tothe Seller Credit Reserve and $14,000,000 to the Equity accountalong with a $69,000,000 reduction to the new purchases forFebruary 1999, we will be in compliance . I have attached the revisedinvestor report for your review .

This report will not be forwarded to the Rating Agency or the Trusteeuntil requested; I have counseled with [Conspirator F] and we believethis to be the most prudent action to take based on the pendingclosing of the NPF VI Series 1999-1 notes.

4AA. On or about April 7, 1999, Conspirator A wrote a letter to Fitch and offered a n

explanation for problems with the NPF VI Investor Reports for February and March . The

explanation was not consistent with the memorandum written by SHERRY L. GIBSON, the

defendant, on March 22, 1999.

4BB. On April 22, 1999, SHERRY L. GIBSON, the defendant, transmitted by facsimile

to Bank One a copy of the Investor Report for NPF XII for March, 1999, the first such report for

NPF XII, which contained false financial information .

4CC. On or about May 21, 1999, SHERRY L . GIBSON, the defendant, caused to b e

prepared , and Conspirator A did sign, an Investor Report forNPF VI, Determination Date April 30 ,

1999, which contained false financial information .

4DD. On or about May 21,1999, at 4:20 p .m., Conspirator E caused to be transmitted by

facsimile from Dublin, Ohio to The Chase Manhattan Bank in New York, a copy of the NPF VI

Investor Report for April, 1999, which contained false financial information .

4EE. On or about May 28, 1999, at 11 :37 a .m., SHERRY L . GIBSON, the defendant,

caused to be transmitted by facsimile from Dublin, Ohio to Credit Suisse First Boston in New York ,

a copy of the NPF VI Investor Report for April, 1999, which contained false financial information .

4FF. On or about June 22, 1999, SHERRY L. GIBSON, the defendant, caused to be

prepared, and Conspirator A did sign, an Investor Report for NPF XII, Determination Date May 31 ,

1999, which contained false financial information.

4GG. On June 22, 1999, at 4:47 p .m., Conspirator E caused to be transmitted by facsimile

to Bank One a copy of the Investor Report for NPF XII for May, 1999, which contained false

financial information .

4HH. On or about July 15,1999, Conspirator E advised in a memorandum , on the subject

of NPF Balances, to Conspirator A, Conspirator B, and Conspirator C that the accounts receivable

balances for several NPF programs, including NPF VI and NPF XII, were short in required reserves

and equity in an aggregate amount of $19,000,000.00 .

411 , On or about July 15, 1999, Conspirator A replied to the July 15, 1999 memorandum

from Conspirator E, indicating,"We will correct after NPF LP is funded on or about June 22, 1999 .

We are on top of this as is [Conspirator G] and [Conspirator D] ." The reply was copied to

Conspirator B, Conspirator C, and SHERRY L. GIBSON, the defendant-

4JJ. On or about July 19, 1999, SHERRY L . GIBSON, the defendant, wrote a

memorandum to Conspirator B, with copies to Conspirator A, Conspirator C, Conspirator E, and tw o

employees of NCFE, not named herein , which provided , in pertinent part

For June 1999 month end, NPF XI was short in reserves, so the $5 .0million liability was transferred to [Seller] in NPF XII . This wasdone in order to bring NPF Xl into compliance for month end testing- - and since the $5 .0 million would be repaid, there should be noproblem

On July 8, 1999, the initial funding for [Seller] took place. TheFunding Department inquired about the $5 .0 million repayment from

10

the initial funding . Attached is an e-mail documenting the result,namely that the $5 .0 million would NOT be recovered from Rending,but would be "alleviated by a Letter of Credit."

As of July 19, 1999, the $5 .0 million is shown on the balance for[Seller] in NPF XII - - which is admittedly a problem. Unfortunately,while [Seller] is a Seller in NPF VI and NPF Xl, neithersecuritization has the available funds to purchase this liability fromNPF XII.

As this $5.0 million issue was supposed to be temporary, noreceivables have been created to substantiate the amount in theAS400. Now that we are looking at a long-term situation, how doyou wish to proceed?

4KK. On or about July 19, 1999, Conspirator B wrote a handwritten note to Conspirator

A and Conspirator C, with copies to Conspirator G, about the $5.0 million loan to a seller, and

advised such procedure should be reviewed from an audit perspective .

4LL. On or about July 22, 1999, SHERRY L . GIBSON, the defendant, caused to be

prepared an investor report for NPF VI, Determination Date June 30, 1999, which contained false

financial information. The report was kept in a file folder labeled, "NPF VI June 1999 Random

Sampling/AUP ." The front inside cover of the folder contained the words "FILE COPY = Given

to the Auditors" and "CONFIDENTIAL = for internal use only NOT distributed." A spreadsheet .

maintained in the file folder detailed the false entries made to the June 1999 cash activity report and

was stamped "CONFIDENTIAL." On this spreadsheet the handwritten note specified, "These

sellers were removed from the June cash activity report for audit purposes" The cash activity report

served as a basis for some of the dollar amounts reported in the investor reports .

4MM. On or before July 23, 1999, SHERRY L. GIBSON, the defendant, received from a n

employee of NCFE, not identified herein, a summary of adjustments to the June, 1999 Investor

Report for NPF X11, which summary of adjustments was also sent to Conspirator A, Conspirator B,

Conspirator C, Conspirator E, and another employee of NCFE, not identified herein, and which

summary of adjustments detailed financial entries that were overstated and financial entries that

were understated, and which contained the following topic header, "To insure compliance, the

following adjustments were made to the respecti?e sections of the NPF XII Investor Report . "

11

4NN. On or about July 26, 1999, Conspirator E wrote a confidential memorandum to

Conspirator A, Conspirator B, and Conspirator C, with copies to Conspirator D, Conspirator G, and

SHERRY L. GIBSON, the defendant, which memorandum provided, in pertinent part:

Attached please find the status of the A/R portfolios as of July 23,1999 .

As of now, we plan to wire funds from NPF VI to NPF XII to fill theshortfall in NPF XII. This will be a partial reversal of last month'stransfer from NPF XII to NPF VI.

400. On or about August 20, 1999, Conspirator E caused to be prepared an investor report

for NPF VI, Determination Date July 31, 1999 , which contained false financial information.

Conspirator E maintained , as business records of NPF VI, a file copy of the false investor report

captioned "NPF VI - Reported," that stated false financial information and a file copy of an investor

report captioned "NPF VI - Actual" that stated accurate financial information for NPF VI .

4PP. On or about August 20, 1999, Conspirator E caused to be transmitted by facsimile

to Fitch in New York copies of the Investor Report for NPF VI for July, 1999, which contained false

financial information .

4QQ . On or about August 23, 1999, Conspirator E caused to be transmitted by facsimile

to The Chase Manhattan Bank in New York copies of the Investor Repo rt for NPF VI for July 1999,

which contained false financial information. The report sent to The Chase Manhattan Bank had

previously been signed by Conspirator A .

4RR. On or about August 29, 1999, Conspirator B transmitted a memorandum to

Conspirator E that provided, in pertinent part:

"VERY CONFIDENTIAL"

GREETINGS FROM HAWAII !

PLEASE GIVE ME SOME TYPE OF REVIEW ON A MONTHLYBASIS OF THE SPECIFIC PROBLEMS YOU'RE HAVING WITHTHE INVESTOR REPORT. OBVIOUSLY MAKE ITCONFIDENTIAL ------ I WOULD LIKE TO GET AS MANY OFTHESE PROBLEMS CLEANED UP AT THE "SOURCE" ANDNOT ALLOW THEM TO CONTINUE MONTH AFTER MONTH .- - - BUT I NEED TO KNOW MORE OF WHAT THEY ARE .

12

SPECIFICALLY, WHAT ARE YOU HAVING TO CHANGEBEFORE THE REPORT GOES OUT THE DOOR ?

4SS. On or about September 8, 1999, Conspirator E sent a memorandum to Conspirator

B, with copies to SHERRY L. GIBSON, the defendant, and two employees ofNCFE, not identified

herein, to which Conspirator E attached "Actual" and "Reported" versions of the July, 1999 NPF

V1 investor report, and in which Conspirator E provided a synopsis of the changes made to the

"Reported" investor report.

4TT. On or about October 6,1999, Conspirator B wrote a memorandum to the CEO of a

Seller, in which Conspirator B confirmed that NCFE continued to advance funds to the Seller, even

though the Seller did not have accounts receivable to support the advances .

4UU. On or about October 15, 1999, Conspirator E wrote a confidential memorandum to

Conspirator A, Conspirator B, Conspirator C, Conspirator D, Conspirator G, and two employees of

NCFE, not identified herein, in which Conspirator E advised : (1) certain reserve accounts of NPF

XII were collectively short by $13,882,456 .00 on September 30, 1999; (2) the September, 1999

Investor Report for NPF XII would show an event of default, and, (3) as of October 15, 1999, the

cash position of accounts receivable portfolios were deficient by $43,776,972.00.

4W. On or about the period October 15, 1999, through October 19,1999, Conspirator A

sent a handwritten note to Conspirator E and an employee of NCFE, not identified herein, advising

that Conspirator A had "a number of ways to correct [the] problem" with the September, 1999

Investor Report for NPF XII.

4WW. On or about October 19,1999, Conspirator A sent a memorandum to Conspirator B,

Conspirator C, Conspirator E, Conspirator G, SHERRY L . GIBSON, the defendant, and an

employee of NCFE, not identified herein, in which Conspirator A stated, in pertinent part :

As, a follow up to [Conspirator E]'s memo, I did meet with [anemployee of NCFE] to review with her the kinds of things that weneed to do before the end of the month to insure our Investor reportsare O.K. The September problem has been handled by adjustingdownward the accounts receivable, and we willbe within complianceon our reporting area. Any of you who wish to review thatmethodology with me on an individual basis may do so .

13

On a go-forward basis, it is no secret that we have three problemareas that are contributing to our fall for the month. This is not acircumstance in which none of us are not aware of the problem. Allof us are doing actions which should lend appreciable support tocorrecting these problems during the course of the month . Thepurpose of this memorandum is just reviewing briefly the actionssteps that each of us individually have taken which hopefully inconcert will end up with the desired result. . . .

In addition to these activities we are pulling out all stops to monaziteNCFE corporate cash as a result of book X transactions. [Twoemployees of NCFE] have been following this pro'ect . Under theirtutelage, they anticipate before October 31" to net $5 .9 million fromthe sale of Notes to Provident and Huntington existing lines . Thiswill be in addition to those funds that we would receive during themonth. There's a lot of containerized information within thismemorandum, should anyone have any questions, please feel free tocall . On this subject, let's keep the memo's to a minimum .

4XX. On or about October 25 , 1999, Conspirator E sent a confidential memorandum to

Conspirator A, with copies to Conspirator B, Conspirator C, Conspirator D, Conspirator G, and

SHERRY L. GIBSON, the defendant, in which Conspirator E advised the NPF portfolios, including

NPF VI and NPF XII, were short by a total of $55,164,209 .

4YY. On or about October 25,1999, Conspirator B sent an interoffice memorandum to an

employee of NCFE, not identified herein, by which Conspirator B instructed that any additional

ineligible accounts receivable were to be booked in Location 99 .

4ZZ. On or about October 26, 1999, Conspirator E sent a confidential memorandum to

Conspirator A, with copies to Conspirator B, Conspirator C, Conspirator D, Conspirator G, and

SHERRY L. GIBSON, the defendant, which provided, in pertinent part :

In an effort to meet the compliance requirements in the AIRportfolios despite a considerable cash shortage projected at monthend October, 1999, I have calculated the minimum cash required inthe portfolios to avoid an event of default, which would result inearly amortizations of the portfolio(s) . Events of default includefailing the Equity Requirement or the Collateral Coverage Test .Reporting the Credit and Offset Reserve balances below theirrequired percentages is not an event of default. Therefore, thebalances in these reserves have been reduced to the amount neededto meet the collateral coverage test only . Calculated at this level, theshortage is reduced from $51,500,00 to $36,200,000.

One of the following options may be used to remedy this situation:

14

l _ On Thursday, October 28, 1999, NCFE will meet the minimumcompliance requirements in NPF VI and NPF XI, for which theTrustee is Chase Manhattan , by wiring approximately $36,000,000from NPF XII to NPF VI and NPF XL . . .The cut off for investorreporting for October, 1999, in NPF VI and NPF XI (ChaseManhattan) will then be October 28, 1999 instead of October 29,1999.

On Friday, October 29,1999, NCFE will wire the $36,000,000 fromNPF VI and NPF XI back to NPF XII. It will also be necessary towire approximately $5,800,000 from NPF WL to NPF XII and$1,100,000 from NPF WL to NPF LP on that day . The cut off forinvestor reporting of October, 1999, in NPF XII, NPF LP and NPFWL will then be the regular date of October 29, 1999 . These threeportfolios are managed by the same Trustee, Bank One .

This option is probably the best one, although there is a concern thatthe Trustee(s) will question such a large amount of cashleaving/coming in to the portfolio(s) .

2. The majority of the problem ($34,000,000) is in NPF VI . NCFEallows NPF VI to remain noncompliant in anticipation of one or moreof the following: 1) a new series in NPF VI anticipated later inNovember ; 2) fiends from sources outside the a/r portfolios. . . Allother portfolios would meet minimum compliance requirementsthrough intercompany wires much as described in Option 1 ; however,the amount of cash that would need to be moved would beconsiderably less and it is doubtful that the Trustee would questionit . The fact thatNPF VI would technically be in default as of October29, 1999 would have to be addressed in some manner with theinvestors/trustees.

4AAA. On or about October 27, 1999, Conspirator E sent a memorandum to

Conspirator A and Conspirator G, with copies to Conspirator B, Conspirator C, Conspirator D, and

SHERRY L. GIBSON, the defendant, which referenced ConspiratorE's confidential memorandum

of October 26, 1999, and which stated, in pertinent pare "DUE TO THE MAGNITUDE AND

NATURE OF THE PROBLEM, WE WILL NOT TAKE ANY FURTHER ACTION REGARDING

MONTH END UNTIL WE RECEIVE SPECIFIC INSTRUCTIONS ."

4BBB. On or about October 28, 1999, Conspirator E sent a memorandum to

Conspirator A, Conspirator B, and Conspirator C with copies to Conspirator D, Conspirator G an d

SHERRY L. GIBSON, the defendant, and stated : "After conversations with [Conspirator A] an d

[Conspirator G], Compliance has been instructed to hold over the month end tests through Monday ,

15

November 1, 1999. This means that we need to abstain from future advancesuntil at least Tuesday,

November, 2, 1999 ."

4000. On or about November 15, 1999, Conspirator E sent a memorandum to

SHERRY L. GIBSON, the defendant, with copies to Conspirator A, Conspirator B, Conspirator C,

Conspirator D, Conspirator F, and Conspirator G, which provided, in pertinent part:

Currently, across all NPF funding programs, the reserve and equitybalances are deficient by over $100 million . The funds required tomeet all the test equals $286 million while the sum of funds availableas of November 15, 1999, is $185 million .

'The proposed solution for the cash shortfall is the $200 million Series1999-3 securitization scheduled to close in NPF XII, Inc . duringNovember 1999 . However, it needs to be noted that this solution willbe a short-term at best. With the increased reserve requirementsassociated with Series 1999-3 plus with the projected initial fundingsand advances, all of the $200 million will be used by the end ofNovember 1999. Listed below is the scheduled use of the $200million .

$72,000,000 -Shortage in NPF VI reserves and equit y24,000,000 -Shortage in NPF XII reserves and equity

5,000,000 -Shortage in NPF XI reserves and equity34,000,000 -Additional reserves required for NPF XII 1999- 350,000,000 -Initial Fundings15,000,000 -November advances and trustee fees

$200,000,000

4DDD. On or about November 22, 1999, Conspirator E caused to be transmitted b y

facsimile to The Chase Manhattan Bank in New York and to Fitch in New York copies of the

Investor Report for NPF VI for October, 1999, which had previously been signed by Conspirato r

A and contained false financial information.

4EEE. On or about December 13, 1999, Conspirator A sent a memorandum to

Conspirator B, Conspirator D, Conspirator E, Conspirator G, SHERRY L . GIBSON, the defendant,

and several employees of NCFE, not identified herein, in which Conspirator A outlined a new

coding procedure for internal tracking of advances made to clients while NCFE waited for collateral

to support the advances, and in which Conspirator A explicitly stated : `"This category should not be

confused with proforma funding, nor should it have the same account number, "

16

4FFF. On or about January 17, 2000, Conspirator E sent a memorandum t o

SHERRY L. GIBSON, the defendant, with copies to Conspirator A, Conspirator D, Conspirator F

and ConspiratorG, in which Conspirator E advised reserve and equity accounts acrossNPF Funding

Programs were collectively deficient by more than $31 million .

4GGG. On or about January 27, 2000, Conspirator E sent a memorandum to

Conspirator A, Conspirator B, and Conspirator C, with copies to Conspirator D, Conspirator F ,

Conspirator G, and SHERRY L . GIBSON, the defendant, in which Conspirator E stated:

As of January 26, 2000, the NPF Funding Programs are deficient ofcash reserves by over $40 million . In order to pass the collateral,reserve and equity tests in each Funding Program, the testing will beheld on two separate days for Monthend January 2000 . For NPF VIand NPF Xl, the accounts will be tested on January 31, 2000 . Then,on February 1, 2000, the accounts will be tested for NPF 3GI, NPFWL, and NPF LP. This will allow NCFE to shift the necessary cashbetween Funding Programs. Therefore, is it important to stopadvancing cash until February 2, 2000 .

4HHH. On or about January 31, 2000, Conspirator B sent a memorandum to

Conspirator A and Conspirator C, in which Conspirator B advised, in pertinent part, "Right now ,

it looks like we are at least $100M off from the AIR [accounts receivable] booked, the collateral an d

the outstanding.,

4111. On or about February 23, 2000, Conspirator E sent a memorandum to

Conspirator A, Conspirator B, and Conspirator C, with copies to Conspirator D, Conspirator F ,

Conspirator G, and SHERRY L . GIBSON, the defendant, which provided in pertinent part:

As of February 22, 2000, the Funding Programs are collectively shortby over $72 million. Additionally, it is now evident that the NPF XIISeries 2000-01 $100 million notes will not fund before the end ofFebruary. Taking these two issues into account and the fact that theprograms are losing about $11 .0 million a week; the programs will beshort by $85 to 90 million by the end of February .

In recent months, NCFE has cured the shortages by wiring fundsbetween the Chase programs (NPF VI and XI) and the Bank Oneprograms (NPF 7GI, LP and WL) and testing the requents ondifferent days. Previously, the maximumamount needed cure theshortages has not exceeded $45 million; this month will require morethan double that amount. It concerns me that the Trustees mayquestions these large wires. They already questioned the accuracy of

17

the lesser wires during the previous months . I would appreciate anythoughts or feedback concerning this issue .

On a related topic, after the interest, trustee fees, and NCFE's incomeare withdrawn from the Funding Programs during the first week ofMarch, they will be short by over S 100 million . Would it be possibleto increase the NPF XII Series 2000-01 to $150 or $200 million tooffset the advances that will be made in March and the monthsahead?

4JJJ. On or about May 31, 2000,- Conspirator E sent a memorandum to SHERRY L.

GIBSON, the defendant , which listed as its subject: "WE ARE OUT OF MONEY," and in which

memorandum Conspirator E stated :

On June 1, 2000, after NCFE pays the monthly interest, trustee feesand withdraws income from the Funding Programs ; there will be atotal of $230 million left in the Funding Programs which is over $113million short. Even with splitting the month end tests on the first andlast business days ofthe month, a minimum of $190 million is neededto pass the tests. Based on last few months, the programs collectivelyfund $50 million more than they collect. With this trend holding true,we will not have enough cash in the trust accounts to pass the Junemonth end Compliance test . Please advise?

4KKK. On or about June 29, 2000, Conspirator A and Conspirator G signed and

caused to be delivered to Deloitte & Touche a letter provided in connection with an audit, in whic h

Conspirator A and Conspirator G stated, in pertinent part, "There have been no fraud involvin g

management or employees who have significant roles in the internal control ."

4LLL . On or about July 19, 2000, SHERRY L . GIBSON, the defendant, advised

Conspirator A, Conspirator B, and Conspirator C by memorandum, copied by handwritten notation

to Conspirator E and Conspirator G and an employee not identified herein, that all NPF funding

programs had a $152.2 million net shortage in cash reserves . In an attachment to the memorandum,

the actual reported shortages for NPF VI was $68,069,369 and NPF XII was $74,116,509 .

4MMM. On or about July 24, 2000, SHERRY L . GIBSON, the defendant, caused to

be prepared an investor report captioned "NPF VI - For Internal Purposes Only - Do Not Distribute, "

for determination date June 30, 2000, which contained correct financial information, and caused to

be prepared another investor report captioned only "NFF VI" for determination date June 30, 2000,

1s

which contained false financial information .

4NNN. On or about July 25, 2000, SHERRY L. GIBSON, the defendant, caused to

be prepared an investor report captioned "NPF XII - For Internal Purposes Only - Do Not

Distribute ," for determination date July 1, 2000, which contained correct financial information, and

caused to be prepared another investor report captioned only "NPF XU" for determination date July

1, 2000, which contained false financial information.

4000. On or about July 8, 2001, SHERRY L. GIBSON, the defendant, sent a

memorandum to Conspirator A, with copies to Conspirator D and an employee of NCFE, not

identified herein, regarding a request from Fitch for certain financial data, in which memorandum

SHERRY L. GIBSON, the defendant, stated, in pertinent part, `°To say we have been non-compliant

in the past is probably not what Fitch wants to hear- and I do not know how this responds to their

data request of July 3, 2001 ."

4PPP. On or about July 16, 2001, SHERRY L . GIBSON, the defendant, confirme d

in a confidential memorandum to Conspirator A, with copies to Conspirator F, Conspirator G, and

an employee of NCFE, not identified herein, a telephone conversation in which SHERRY L .

GIBSON, the defendant, and Conspirator A discussed the status of reserve accounts in NPF VI and

NPF XII causing problems with investor reports, and the resulting questions about investor reports

raised by Fitch.

4QQQ. On or about July 23, 2001, SHERRY L. GIBSON, the defendant, caused to

be prepared, and Conspirator A did sign, an investor Report for NPF VI, Determination Date June

30, 2001, which contained false financial information .

4RRR. On or about July 24, 2001, SHERRY L . GIBSON, the defendant, caused to

be prepared, and Conspirator A did sign, an Investor Report for NPF XII, Determination Date June

30, 2001, which contained false financial information .

4SSS. On or about August 29, 2001, SHERRY L . GIBSON, the defendant, sent a

confidential memorandum to Conspirator A regarding NPF XII Series 2001-3, which provided :

19

As you may expect, we are having problems generating the poolstatistics for the new series in NPF M . Here 's the problem:

1 . To pass the collateral coverage test in NPF X11, we have beenadding receivables to the calculation in the investor report.The dollar . amounts in the reserve accounts are fixed, sowithout cash, the only other way to pass the test is additionalreceivables.

2. Due to the continual shortage of cash in the reserves, theinvestor reports, therefore , have OVERSTATED thereceivables compared to the actual balances in the AS400and/or funding systems .

3_ The static pool information roughly matches the investorreport data for the last eighteen ( 18) month period. Weattempt to have the static pool data reflect each monthlyreceivables balance in the investor repo rt.

OK, so now we have a reported receivables balance we have to matchin the static pool data, While the actual balances in NPF XII arecloser to $1.489 billion, the receivables balance in the currentinvestor report for NPF XII is $2,000,382,873. This means we haveto add receivables on a Seller-by Seller basis in the static pool inorder to match the current investor report for NPF XII.

After some work, we have added receivables in a somewhat arbitraryfashion to the current Sellers in NPF XII - and we have a totalreceivables balance of $1,916,636,111 . We are still shortapproximately $84,000,000 .

One of the attached reports provides the Sellers with their reportedand actual balances. The second report lists the Sellers that havefunded (using the last series funds).

Until we can distribute the receivables across all Sellers, we cannotcomplete the static pool data for NPF XII Series 2001-3 .

Any ideas? Please advise.

4TTT. On or about September 25, 2001, SHERRY L. GIBSON, the defendant,

caused to be prepared, and Conspirator A did sign, an Investor Report for NPF XII, Determination

Date September 4, 2001, which contained false financial information.

4UUU. On or about the period October 31, 2001 through November 1, 2001 ,

SHERRY L . GIBSON, the defendant, directed an employee ofNCFE, not named herein , to prepare

wire instructions for month end reserve transfers between bank accounts for NPF VI and NPF XII .

4VVV . On November 1, 2001 , SHERRY L. GIBSON, the defendant , caused to be

20

transferred by wire $152,052,003.00 from an NPF VI Purchase Account at The Chase Manhattan

Bank to an NPF XII Collection Account at Bank One .

4WWW. On November 2, 2001, SHERRY L. GIBSON, the defendant, caused to be

transferred by wire $139,876,544.02 from an NPF XII Purchase Account at Bank One to an NPF

VI Collection Account at The Chase Manhattan Bank .

4XXX. On or about November 30, 2001, SHERRY L. GIBSON, the defendant,

directed an employee of NCFE, not identified herein, to prepare wire instructions for month en d

reserve transfers between bank accounts for NPF VI and NPF XII .

4YYY. On November 30, 2001, SHERRY L . GIBSON, the defendant, caused to be

transferred by wire $17,812,004.50 from an NPF XII Purchase Account at Bank One to an NPF V I

Collection Account at The Chase Manhattan Bank.

4ZZZ. On December 3, 2001, SHERRY L. GIBSON, the defendant , caused to be

transferred by wire $121,499,220.02 from an NPP VI Purchase Account at The Chase Manhatta n

Bank to an NPF X11 Collection Account at Bank One.

4AAAA . On or about December 28, 2001, SHERRY L. GIBSON , the defendant,

directed an employee of NCFE to prepare wire instructions for month end reserve transfers between

bank accounts for NPF .VI and NPF XIII .

4BBBB. On December 31, 2001, SHERRY L. GIBSON, the defendant, caused to b e

transferred by wire $115,075,036 .00 from an NPF X11 Purchase Account at Bank One to an NPF

VI Collection Account at The Chase Manhattan Bank .

4000C. On or about January 2, 2002, SHERRY L. GIBSON, the defendant, directed

an employee of NCFE, not identified herein, to prepare wire instructions for month end reserve

transfers between bank accounts for NPF VI and NPF XII .

4DDDD. On January 2, 2002, SHERRY L . GIBSON, the defendant, caused to be

transferred, with the approval of Conspirator D, a wire of $148,048,000.00 from an NPF VI

Purchase Account at The Chase Manhattan Bank to an NPF XII Collection Account at Bank One .

21

4EEEE. On or about January 3, 2002, SHERRY L . GIB SON, the defendant, directed

an employee of NCFE, not identified herein , to prepare wire instructions for month end reserv e

transfers between bank accounts for NPF VI and NPF XII.

4FFFF. On January 3, 2002, SHERRY L. GIBSON, the defendant, caused to be

transferred, with the approval of Conspirator D, a wire of $148,048,000 .00 from an NPF XII

Purchase Account at Bank One to an NPF VI Collection Account at The Chase Manhattan Bank.

4GGGG. On or about January 23, 2002, SHERRY L. GIBSON, the defendant, caused

to be prepared, and Conspirator A did sign , an Investor Report for NPF VI and a Revised Investor

Report for NPF VI, Determination Date December 31, 2001 , which contained false financial

information, and both of which noted on page 1, "If you would like to view this repo rt online ,please

visit our website at www.ncfe.com. "

4HHHH. On March 1, 2002, SHERRY L. GIBSON, the defendant, caused to b e

transferred by wire $145,985,828.99 from an NPF VI Purchase Account at The Chase Manhatta n

Bank to an NPF XII Collection Account at Bank One .

4111. On or about March 4, 2002, SHERRY L. GIBSON, the defendant, supervise d

an employee of NCFE, not identified herein, in the preparation of wire instructions for month en d

reserve transfers between bank accounts for NPF VI and NPF XII .

4JJJJ. On March 4, 2002, SHERRY L. GIBSON, the defendant, caused to be

transferred by wire $128,589,681 .01 from an NPF XII Purchase Account at Bank One to an NP F

VI Collection Account at The Chase Manhattan Bank.

4KKKK. On or about June 3 , 2002, SHERRY L . GIBSON, the defendant , supervised

an employee of NCFE, not identified herein , in the preparation of wire instructions for month end

reserve transfers between bank accounts for NPF VI and NPF XII to occur on June 3, 2002 .

4LLLL . On June 3 , 2002 , SHERRY L . GIBSON , the defendant, caused to be

transferred by wire $50,969,827.00 from an NPF VI Purchase Account at The Chase Manhattan

Bank to an NPF XII Co llection Account at Bank One.

22

4M M11M. On or about June 3 , 2002, SHERRY L. GIBSON, the defendant, supervised

an employee of NCFE, not identified herein, in the preparation of wire instructions for month end

reserve transfers between bank accounts for NPF VI and NPF XII to occur June 4, 2002 .

4NNNN. On June 4, 2002, SHERRY L. GIBSON, the defendant, caused to be

transferred , with the approval of Conspirator D, a wire of $42 ,245,749 . 00 from an NPF XII Purchase

Account at Bank One to an NPF VI Collection Account at The Chase Manhattan Bank.

40000. On or about July 24, 2002, Conspirator A sent a letter to Chase Manhattan

Bank, with copies to Conspirator F and Conspirator G, in which Conspirator A stated, in pertinen t

part:

Please find attached the consolidated financial statements forNational Century Financial Enterprises for the period endingDecember 31, 2001 . These statements are sent to you in accordancewith the indenture requirement for each of the respective portfoliosfor which you are trustee . The financial statements sent to you are infinal form and detail, they lack only the auditors' cover letter, whichwill be coming to you shortly under separate cover. There should beno material changes to the financial statements or footnotes asoutlined in the attached .

when in truth and fact, as Conspirator A then well knew, the documents attached to the letter wer e

spurious .

In violation of 18 U.S.C. § 371 .

GREGORY G. LOCKHART (0007791)--United States Attorney

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EXHIBIT D

Complaint: Brian J . Stucke Page 1 of8

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

Securities and Exchange Commission,

Plaintiff, CIVIL ACTIO NFILE NO. C-2031161

v . '

BRIAN J . STUCKE, JUDGEEDMUND A. SARGUS JR .

Defendant .

PLAINTIFF SECURITIES AND EXCHANGE COMMISSION'SCOMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABL E

RELIEF

Plaintiff , the United States Securities and Exchange Commission("Commission"), alleges the following :

SUMMARY

1 . Beginning In at least 1999 and continuing into 2002, senior officials ofNational Century Financial Enterprises, Inc . ("National Century") defraudedinvestors who invested billions of dollars in securities issued by whollyowned subsidiaries of National Century . The subsidiaries sold the securitiesfor the stated purpose of purchasing and servicing medical accountsreceivable through National Century .

2. Defendant Brian 3 . Stucke ("Stucke") actively participated in the fraud asalleged in this Complaint .

3. Beginning in at least 1999, senior National Century officials improperly"advanced" to health-care providers $1 billion or more of the capital raisedfrom investors without receiving required medical accounts receivable inreturn . These advances were essentially unauthorized, unsecured loans todistressed or defunct health-care providers-many of which were partly orwholly owned by National Century or its principals . The unsecured advanceswere inconsistent with representations made by Stucke and senior NationalCentury officials in offering documents and monthly reports provided toinvestors .

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4. Stucke and senior National Century officials concealed the fraud fromtrustees, investors, potential investors, and auditors by, among otherthings, repeatedly transferring funds between the subsidiaries' bankaccounts to mask shortfalls of as much as $400 million ; recording $1 billionor more in non-existent or ineligible medical accounts receivable on thebooks of National Century's subsidiaries ; creating and distributing falseoffering documents, monthly investor reports, and accounting records totrustees, investors, potential investors, and auditors ; and misrepresentingthe status of the programs' cash accounts and collateral base to trustees,investors, potential investors, and auditors .

5. The Commission brings this action pursuant to Section 20(b) of theSecurities Act of 1933 ("Securities Act") [15 U .S.C. § 77t(b)] and Sections21(d) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U .S.C. §78u(d)] for a judgment permanently restraining and enjoining DefendantStucke, ordering disgorgement of unlawful profits, imposing a civil penalty,prohibiting Defendant Stucke from acting as an officer or director of anyreporting company, and for other relief .

6. Defendant Stucke , directly and indirectly , has engaged and, unlessenjoined , will continue to engage in transactions, acts , practices, andcourses of business which constitute violations of Section 17(a) of theSecurities Act [15 U.S.C. § 77q (a)], and Section 10 (b) of the exchange Act[15 U .S .C . § 78j(b)] and Rule 14b -5 [17 C .F.R. § 240 . 10b-5 ] promulgatedthereunder .

JURISDICTION AND VENUE

7. The Cou rt has jurisdiction over this action pursuant to Section 22(a) ofthe Securities Act [15 U.S.C. § 77v(a)] and Sections 21 (e) and 27 of theExchange Act [15 U.S.C. § 78u (e) and 78aa] .

8. Defendant Stucke, directly and indirectly, has made use of the meansand instruments of transportation and communication in interstatecommerce, of the means and instrumentalities of interstate commerce, andof the mails in connection with the transactions, acts, practices, andcourses of business alleged herein, within the jurisdiction of the SouthernDistrict of Ohio and elsewhere .

THE DEFENDANT

9. Beginning in 1999 and continuing into 2002 (the "relevant period"),Defendant Stucke resided in London, Ohio and was employed by NationalCentury, from September 1999 to July 2000, as its Director of Complianceand, from July 2000 through the present as its Associate Vice-President forBusiness Services .

RELEVANT ENTITIES

10. National Century is , and during the relevant period was , a privatelyheld Ohio corporation headqua rtered in Dublin, Ohio.

11 . During the relevant period, National Century organized and owned twosubsidiaries, NPF VI, Inc . ("NPF VI") and NPF XII, Inc. ("NPF XII") . Both

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NPF VI and NPF XII are Ohio corporations, and both are wholly ownedsubsidiaries of National Century .

BACKGROUND

12 . National Century, through NPF VI, NPF XII, and another wholly ownedsubsidiary, engaged in the business of purchasing and servicing medicalaccounts receivable from health-care providers .

13 . From 1991 through August 2002, National Century utilized NPF VI, NPFXII, and other wholly owned subsidiaries to purchase medical accountsreceivable and to issue and sell notes secured by those medical accountsreceivable .

14. During the relevant period, senior National Century officials and Stucke(as Director of Compliance from September 1999 to July 2000), controlledand directed the activities of NPF VI and NPF XII .

15. NPF VI and NPF XII financed their purchases of medical accountsreceivable by selling notes to large institutional investors in several statesoutside Ohio. The notes were secured by medical accounts receivableowned by NPF VI and NPF XII .

16. During the relevant period , NPF VI and NPF XII financed their purchasesof medical accounts receivable by issuing notes totaling at least$3.25 billion in a series of at least sixteen private placements .

17. As of November 2002, approximately $3 billion of notes issued byNPF VI and NPF XII were outstanding and held by investors .

18 . The terms of each private placement of notes sold by NPF VI and NPFXII were contained in a set of agreements, including master indentureagreements, supplemental indenture agreements, note purchaseagreements, and sales and sub-servicing agreements ("the programagreements") .

19. The program agreements prescribed that National Century, through awholly owned subsidiary, disburse offering proceeds to health-careproviders only in return for medical accounts receivable which satisfiedcertain standards set out in the program agreements ("eligiblereceivables") .

20. The program agreements also required that, through wholly ownedsubsidiaries, National Century maintain certain prescribed amounts ofpurchased medical accounts receivable as collateral for the notes ; thatNational Century remove any medical accounts receivable that aged beyond180 days ; and that National Century comply with strict concentrationrequirements in assembling the pools of medical accounts receivable thatsecured the notes .

21. In addition, the program agreements required that bank accounts("reserve accounts") be opened and funded in order to provide for, amongother things, defaulted medical accounts receivable and shortfalls causedby Medicare and Medicaid offsets . The program agreements required that

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NPF VI and NPF XII maintain in the reserve accounts amounts equal to 17%of the purchase prices paid for medical accounts receivable .

22. The program agreements also required, with minor exceptions, that thereserve accounts be fully funded .

23. Under the program agreements, moneys held in the reserve accountscould be used for only certain specified, limited purposes .

24 . NPF VI and NPV XII were further required by the program agreementsto have the reserve accounts tested by auditors once each month, for thebenefit of the investors .

THE SCHEME TO DEFRAUD

25. During the relevant period, National Century personnel systematicallydefrauded the purchasers of notes issued by NPF VI and NPF XII .

26. First, several senior National Century officials created shortfalls in thereserve accounts and collateral base by advancing $1 billion or more inoffering proceeds to certain health-care providers without receiving eligiblemedical accounts receivable in return . Many of these advances were tohealth-care providers wholly or partly owned by several senior officials ofNational Century .

27. Second, senior National Century officials and Stucke (as Director ofCompliance from September 1999 to July 2000) took deliberate steps toconceal the reserve and collateral shortfalls from trustees, investors,potential investors, and auditors . Among other things, Stucke and othersregularly transferred funds between the NPF VI and NPF XII reserveaccounts in order to mask reserve-account shortfalls of as much as$400 million .

28. Third, National Century personnel overstated the collateral securing thenotes by recording at least $1 billion in non-existent or ineligible medialaccounts receivable as collateral, and then falsely reporting that collateralas eligible receivables to trustees, investors, potential investors, andauditors .

29. Fourth, Stucke (as Director of Compliance from September 1999 toJuly 2000) and others created false offering documents, false monthlyinvestor reports, and false accounting records to conceal their misuse ofoffering proceeds . Stucke and other National Century personnel thenprovided the false documents to trustees, investors, potential investors,and auditors .

30 . Finally, senior National Century officials misrepresented the status ofthe rese rve accounts and collateral base in personal contacts with trustees,investors, potential investors, and auditors .

DEFENDANT STUCKE'S ROLE IN THE SCHEME TO DEFRAU D

Uncoilateralized Advances

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31. From Janua ry 1999 to July 2000, Stucke pa rt icipated in uncollateralizedadvances of investor funds to health -care providers by preparing formsauthorizing such advances for signature by other National Centu ry officials .

Fraudulent Reserve-Account Transfers

32. During the relevant period, NPF VI and NPV XII were required by theprogram agreements to test and report the status of the program reserveaccounts once each month. Initially, the reserve accounts of both NPF VIand NPF XII were tested and reported on the same day each month .

33 . When the reserve account shortfalls worsened in late 1999 and early2000, Stucke, with the knowledge and approval and at the direction ofsenior National Century officials, altered the testing dates so that thereserve accounts of NPF VI and NPF XII would be tested on different dayseach month .

34. By thus altering the testing dates it became easier for National Centuryto transfer large sums between the reserve accounts without detection andthereby create the false appearance that all the reserve accounts were fullyfunded ,

35 . As Director of Compliance, with the knowledge and approval and at thedirection of senior National Century officials, Stucke directed subordinatesto mask reserve-account shortfalls from trustees, investors, potentia linvestors, and auditors by improperly transferring funds between thereserve accounts for NPF VI and NPF XII . Many of the transfers exceeded$100 million .

36 . Stucke monitored the transfers and prepared memoranda for seniorcompany officials reporting on the transfers and the status of reserveaccount shortfalls . Stucke further summarized to senior National Centuryofficials the available options for concealing the reserve account shortfalls .

Misuse of Securitization Proceeds

37. In November 1999, National Century sold a new issue of securities toinvestors . Contrary to the representations contained in the offeringdocuments, Stucke and senior National Century officials used the proceedsof the offering to cover a $101 million shortfall in the reserve accounts .

False Investor Reports

38. During a portion of the relevant period, as Director of Compliance,Stucke supervised the drafting of monthly investor reports required of NPFVI and NPF XII under the program agreements .

39. In several months during the relevant period, as Director ofCompliance, Stucke knowingly directed subordinates to falsify the monthlyinvestor reports .

40 . The monthly investor reports falsely overstated reserve-accountbalances and collateral . The false Information in the investor reports wasmaterial to investors and potential investors .

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41. In several months during the relevant period, as Director ofCompliance, Stucke transmitted or directed subordinates to transmit thefalse investor reports to program trustees and program investors .

42. Stucke knew that the false Investor reports would be transmitted topotential investors in offerings conducted by NPF VI and NPF XII .

COUNT IViolations of Section 17 ( a)(1) of the Securities Act

[15 U.S.C. § 77q(a)(1)]

43 . Paragraphs 1 through 42 are realleged and incorporated by referenceherein .

44 . By the conduct alleged above, Defendant Stucke, In the offer or sale ofsecurities, by the use of means or instruments of transportation orcommunication in interstate commerce or by the use of the malls, directlyor indirectly, employed devices, schemes, or artifices to defraud .

45. Defendant Stucke acted with scienter when he engaged in the conductalleged In paragraphs 43 through 44 above .

46. By reason of the activities alleged in paragraphs 43 through 45 above,Defendant Stucke violated Section 17(a)(1) of the Securities Act [15 U.S.C.§ 77q(a)(1)] .

COUNT IIViolations of Sections 17(a)(2 ) and (3) of the Securities Act

[15 U.S .C. §§ 77q(a)(2) and (3) ]

47. Paragraphs 1 through 42 are realleged and incorporated by referenceherein .

48 . By the conduct alleged above, Defendant Stucke, In the offer or sale ofsecurities, by the use of means or instruments of transportation orcommunication in interstate commerce or by the use of the mails, directlyor indirectly, obtained money or property by means of untrue statements ofmaterial facts and omissions to state material facts necessary in order tomake the statements made, in the light of the circumstances under whichthey were made, not misleading and engaged In transactions, practices orcourses of business which would and did operate as a fraud or deceit uponpurchasers and prospective purchasers of such securities .

49. By reason of the activities alleged In paragraphs 47 through 48 above,Defendant Stucke violated Sections 17(a)(2 ) and (3) of the Securities Act[15 U.S .C. H 77q(a)(2) and (3)] .

COUNT IIIViolations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)]

andRule lOb-S Thereunder [17 C .F.R. § 240.10b-5]

50. Paragraphs 1 through 42 are realleged and incorporated by referenceherein .

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51. By the conduct alleged above, Defendant Stucke, in connection with thepurchase and sale of securities, by the use of the means andinstrumentalities of interstate commerce or by the use of the mails, directlyor indirectly, employed devices, schemes, and artifices to defraud, mad e

untrue statements of material facts and omitted to state material factsnecessary in order to make the statements made, in the light of thecircumstances under which they were made, not misleading, and engagedin acts, practices or courses of business which would and did operate as afraud and deceit upon the purchasers and sellers of such securities .

52 . Defendant Stucke acted with scienter when he engaged in the conductalleged in paragraphs 50 through 51 above .

53 . By reason of the activities alleged in paragraphs 50 through 52 above,Defendant Stucke violated Section 10(b) of the Exchange Act [15 U .S .C . §78j(b )] and Rule 10b -5 promulgated thereunder [17 C .F.R. § 240.10b-5] .

PRAYER FOR RELIE F

WHEREFORE , the Commission respectfully requests that the Court :

1 .

Issue findings of fact and conclusions of law that Defendant Stuckecommitted the violations charged and alleged herein .

II .

Permanently enjoin Defendant Stucke from violating Sections 17(a)(1), (2)and (3 ) of the Securities Act [15 U .S.C. §§ 77q(a)(1), (2) and (3)] .

III .

Permanently enjoin Defendant Stucke from violating Section 10(b) of theExchange Act [15 U .S .C. § 78j (b)] and Rule 10b-5 promulgated thereunder[17 C.F .R . § 240 . 10b-5] .

IV.

Order Defendant Stucke to pay into the registry of this Court disgorgementof his ill-gotten gains from his illegal conduct, gained directly or indirectlyfrom the conduct complained of herein, together with prejudgment interestthereon.

V.

Order Defendant Stucke to pay to the Commission a civil penalty pursuantto Section 20(d) of the Securities Act (15 U .S .C . § 77t(d) ) and Section 21(d)(3) of the Exchange Act [15 U.S.C . § 78u(d)(3)] .

VI.

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Order that Defendant Stucke be barred f rom acting as an officer or directorof any issuer whose securities are registered pursuant to Section 12 of theExchange Act [15 U .S.C. § 7811, pursuant to Section 20(e) of the SecuritiesAct [15 U.S.C. § 77t( e)] and Section 21(d)(2 ) of the Exchange Act [15U.S.C. § 78u (d)(2)] as a result of his violation of Section 17 (a) of theSecurities Act [15 U .S .C. § 77q(a)] and Section 10(b) of the Exchange Act[15 U.S .C . § 78](b)] and Rule l0b -5 promulgated thereunder [17 C.F.R. §240.10b-5] .

VII .

Retain jurisdiction of this action in accordance with the principles of equityand the Federal Rules of Civil Procedure in order to implement and to carryout the terms of all orders and decrees that may be entered or to entertainany suitable application or motion for additional relief within the jurisdictionof the Court .

VIII .

Grant an Order for such further relief as the Court may deem appropriate .

Respectfully Submitted ,

s/3ohn E . BirkenheierJohn E . BirkenheierPaul A. MontoyaDavid M . ColeAttorneys for PlaintiffU. S. Securities and Exchange Commissic175 West Jackson Street, Suite 900Chicago , Illinois 6060 4(312) 353-7390 (phone)(312) 353- 7398 (fax )

Local Counsel :Mark T. D'AlessandroOhio Bar No . 0019877Assistant United States Attorney303 Marconi Blvd ., 2nd FloorColumbus, Ohio 4321 5(614) 469-5715 (phone)(614) 469-5653 (fax)

Dated : December --, 200 3

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