UBS May Face Civil Charges From SEC

Investment banking giant UBS said Tuesday that the Securities and Exchange Commission might bring civil charges against it over work the firm did for HealthSouth Corp., whose founder faces trial on allegations he masterminded a $2.7-billion accounting fraud.

The case is an example of regulators’ efforts to hold Wall Street financiers responsible if they are shown to have abetted corporate clients’ wrongdoing.

The SEC sent UBS a so-called Wells notice saying its staff may recommend taking enforcement action against the Zurich-based company for violations of federal securities law, the company said.

Birmingham, Ala.-based HealthSouth, the world’s largest operator of rehabilitation hospitals, was accused by the SEC of accounting fraud last year. U.S. lawmakers have been investigating whether UBS played a role in the fraud. The bank led a $1-billion bond sale for HealthSouth in 2000 and was part of another $1-billion issue in 2002.

An investor lawsuit alleged this year that UBS bankers Benjamin Lorello and William McGahan helped conceal financial losses at HealthSouth.

The company’s stock, which rose above $30 a share in 1998, plunged as low as 8 cents in 2003. It has since rebounded somewhat, and ended at $6.29 in the electronic Pink Sheets market Tuesday, up 7 cents.

The penalties for UBS could “range from being fairly small to quite severe,” said Simon Adamson, an analyst at CreditSights Inc. in London. “It depends how much regulators can prove that there was something illegal or against the spirit of the market.”

Chief Executive Peter Wuffli, 47, said last year that UBS hadn’t found evidence it violated laws.

UBS said it was “cooperating fully” with the SEC and other agencies probing HealthSouth.

UBS shares fell 80 cents to $82.60 on the New York Stock Exchange, on a strong day for the stock market overall.

Seventeen former HealthSouth executives who worked for founder Richard Scrushy, 52, have pleaded guilty to fraud. Scrushy blames his staff for the accounting fraud and denies allegations of inflating income or other wrongdoing.

UBS’ Lorello and McGahan handled the HealthSouth account for years before the company was raided by the FBI in March 2003. McGahan, who has left UBS, and Lorello have denied knowing about the alleged fraud at HealthSouth.