Wednesday, December 22, 2004
UBS AG, a large multinational investment bank, disclosed yesterday (press release here) that it received a Wells Notice from the SEC that the Enforcement Division staff is planning to recommend the institution of a civil action against the company for securities fraud related to its investment banking work on behalf of HealthSouth Corporation. A Wells Notice invites a company or person to file a response with the Commission staff arguing why charges should not be filed, and it is often an invitation to negotiate a settlement.
UBS was the leading investment banker for HealthSouth, and participated as an underwriter in numerous stock and bond offerings for the company while its analysts were among thestock's main cheerleaders. According to a Wall Street Journal article (Dec. 22), two UBS bankers, Benjamin Lorello and William McGahan, had a close relationship with Richard Scrushy, HealthSouth's former CEO who is scheduled to go on trial early next year for securities fraud and violating the Sarbanes-Oxley Act's CEO/CFO certification provision. The WSJ article notes:
The SEC has been looking into UBS's work for HealthSouth for months, with a focus on whether any UBS bankers had knowledge of the accounting fraud or did transactions with HealthSouth that made the company's books appear stronger than they actually were, according to people familiar with the probe. HealthSouth, one of the nation's largest providers of rehabilitative and surgical health care, has been under the scrutiny of Justice Department and SEC investigators for two years.
At this point, there is no indication that any individuals at UBS have received Wells Notices, but there is a reasonable likelihood that the SEC will file charges against individuals at some point. (ph)