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Call For UBS HealthSouth Papers

May 9, 2003 | FT.COM

US lawmakers have asked UBS Warburg and Benjamin Lorello, its star healthcare banker, to turn over a wide range of records about its work for HealthSouth, the embattled hospital group.

Billy Tauzin, the chairman of the House energy and commerce committee, on Thursday sent a letter to John Costas, the head of UBS Warburg, requesting details of the assignments that the bank carried out for HealthSouth and its former chief executive, Richard Scrushy, and records of communications between the bank and the company's directors and employees.

The letter suggests that the committee is zeroing in on the role of UBS and Mr Lorello as they prepare to hold hearings this summer on the massive accounting fraud at HealthSouth.

"Like everyone else, UBS Warburg was shocked and dismayed to learn of the accounting fraud that took place at HealthSouth," a spokesperson for UBS said yesterday.

"Of course the firm will co-operate fully with the request."

The Securities and Exchange Commission in March charged HealthSouth and Richard Scrushy with inflating earnings by $1.4bn. Mr Scrushy has also been hit with insider trading charges but has thus far avoided a criminal indictment. Eleven HealthSouth executives, including all five of its chief financial officers, have pleaded guilty to criminal charges.

UBS Warburg became one of HealthSouth's leading investment bankers after Mr Lorello was recruited to lead its healthcare banking group in 1999. The next year, it underwrote a $1bn bond offering for the company.

Mr Tauzin and other committee members are questioning how Mr Lorello and his team could have worked so closely with UBS and Mr Scrushy without detecting the long-running fraud.

They are investigating claims that one UBS banker, William McGahan, actually maintained an office and computer at HealthSouth.

"There was an incestuous relationship between top officials at HealthSouth and a group of Wall Street bankers and analysts," said Ken Johnson, a spokesman for Mr Tauzin.

Another matter of concern to Congressional investigators is that UBS healthcare analyst Howard Capek maintained a favourable rating on the company even after it announced a $175m earnings shortfall in 2002.

Separately, HealthSouth has chosen PwC as its new independent auditor following its dismissal of Ernst & Young at the end of March.

The company is in a fight to stave off bankruptcy and has hired restructuring experts Alvarez & Marsal to lead a financial appraisal, which is expected at the end of June. PwC was hired in late March to conduct a forensic audit.

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