Congressional leaders are questioning an equity analyst over disparaging e-mail messages he sent privately about HealthSouth Corp. even though he publicly rated the company as a "strong buy" in the months before and after writing the e-mails.
House Energy and Commerce Committee Chairman Billy Tauzin (R-La.) and ranking Democrat John Dingell (D-Mich.) on Thursday expanded their investigation into the $2.5 billion accounting scandal at Birmingham, Ala.-based HealthSouth by requesting records from Howard Capek, former managing director for healthcare research at UBS Investment Bank, a unit of Swiss bank UBS AG.
They ask for any Capek documents related to HealthSouth and eight other companies with ties to HealthSouth founder and former CEO Richard Scrushy.
Capek resigned under pressure on July 2 following disclosure of two e-mails he sent in 1999 to a vice president at Northern Trust Co., a Chicago-based institutional investor.
According to Tauzin and Dingell, Capek tells the Northern Trust executive on Sept. 10, 1999, "HRC, what a mess. I would not own a share. We need to speak on this one." HRC was the stock ticker symbol for HealthSouth, the nation's largest operator of rehabilitation and ambulatory surgery centers.
In an Aug. 19, 1999, message to the same Northern Trust vice president, Capek writes of HealthSouth, "I'll send you a few charts and graphs which should glaringly highlight the company's inability to collect and convert sales into cash and also their inability to reinvest cash at good rates of return," according to the congressmen.
Tauzin and Dingell say this correspondence "raises even more serious questions about the accuracy of what (Capek) may have been representing to the investing public."
Capek initiated coverage on HealthSouth in May 1999 with a "strong buy" recommendation, but he suspended coverage a month later when UBS began an investment banking relationship with HealthSouth. He resumed his research in February 2000 with another "strong buy" rating.
UBS "performed a substantial number of transactions for HealthSouth," according to the Energy and Commerce Committee.
Thomas Fitzpatrick, a New York attorney representing Capek, notes that Capek did not publish any research on HealthSouth during the time he wrote the two e-mails in question. Fitzpatrick calls the two messages "unfortunate" but says that other messages not yet made public will exonerate Capek.
"We actually look forward to responding (to the congressional committee) because it actually will put those two e-mails in perspective and demonstrate that there are many other e-mails that show he was consistent in his opinions," Fitzpatrick says.