Swiss banking conglomerate UBS AG rejected a loan application from HealthSouth Corp. just four days before federal agents raided the Birmingham, Ala., headquarters of the scandal-plagued outpatient rehabilitation and surgery center company, a UBS spokesperson confirms.
However, the bank is denying that it had any information suggesting that UBS officials knew about massive accounting fraud at HealthSouth at the time of the loan decision in February.
HealthSouth since has been charged with overstating profits by $2.5 billion between 1997 and 2002 and with inflating the value of company assets by $800 million in public financial reports. Eleven former company executives--including all five former CFOs--have admitted to taking part in the accounting scheme that federal prosecutors suspect may go back as far as 1986.
The Reuters news agency reported the loan denial Friday evening, based on information provided by an unnamed UBS attorney.
The attorney also provided Reuters with a recording of a telephone call purportedly between former HealthSouth CFO William Owens--one of the 11 to plead guilty and offer to cooperate with prosecutors--and another, unidentified Health South executive.
In that call, Owens reportedly says that William McGahan, then a UBS investment banker "shouldn't" and "doesn't" know "anything that is going on."
A bank spokesperson in New York City calls the Reuters account "accurate" but declines to comment further.
The recording was introduced as evidence in a recent court hearing in Birmingham in which HealthSouth founder and former CEO Richard Scrushy successfully fought to have a federal court lift a freeze on his personal assets.
McGahan since has left UBS for what the bank calls personal reasons, but UBS continues to be part of separate investigations by federal officials and lawmakers into HealthSouth's dealings.
The House Energy and Commerce Committee already is examining the relationship between Scrushy and Benjamin Lorello, a banker with UBS Warburg, the U.S. investment banking subsidiary of UBS. Both UBS Warburg and Lorello's previous employer, Citigroup, have received millions of dollars in fees for financial services provided to HealthSouth, according to HealthSouth regulatory filings.
The congressional committee is probing HealthSouth for accounting irregularities and for possible Medicare and Medicaid billing fraud.