Already embroiled in litigation stemming from financial woes suffered under its former chief executive officer, Mount Sinai Medical Center, Miami Beach, Fla., now faces a Securities and Exchange Commission investigation into one of its bond issues.
The SEC has asked the Miami Beach (Fla.) Health Facilities Authority, which issued the bonds on behalf of the hospital, to turn over all documents concerning the 2001 sale, which was underwritten by Merrill Lynch & Co.
Mount Sinai used proceeds from the $250 million sale to complete its $75 million purchase of the Miami Heart Institute and redeem previously issued bonds, said Murray Dubbin, Miami Beach city attorney and general counsel for the health authority. Dubbin said the authority would comply with the request, but said he didn't know what prompted it.
An SEC spokesman and a Merrill Lynch representative declined to comment.
Steven Sonenreich, who became CEO of 780-bed Mount Sinai since the bonds were issued, said in a written statement last week that the hospital would cooperate with the probe.
The performance of previous CEO Bruce Perry-during whose tenure the bonds were issued-is the subject of a lawsuit filed by the hospital accusing executive recruiting firm Heidrick & Struggles of failing to investigate Perry's background before he was hired in 1998 (Jan. 27, p. 6). Perry had predicted the hospital would turn a profit in 2001, but instead it lost $64.8 million.
The SEC could be looking at the accuracy of the hospital's financial statements, which were provided to potential buyers of the bonds, said Steven Kite, a principal with Gardner, Carton & Douglas who works on healthcare bond issues. In 2001, the hospital revealed that it had underreported operating losses by more than $50 million.
"It seems to be a disclosure problem," said Kite, who is not involved in the Mount Sinai investigation. He added, "There is probably a lot of blame to go around if the statements are, in fact, inaccurate."
Though unusual, it would not be the first time the SEC launched an investigation of a not-for-profit hospital for misleading bond buyers. In 2000, the SEC filed a civil lawsuit charging three outside auditors of Allegheny Health, Education and Research Foundation with securities fraud.
In a statement last week, Sonenreich said Mount Sinai's financial performance has been turning around.