BUSINESS

Lawsuit claims HealthSouth auditors knew about fraud

The bankers are also alleged to have known, although both groups deny it.

By Katherine Vogt, AMNews staff. Feb. 2, 2004.

HealthSouth's outside auditors and investment bankers knew of the accounting fraud at the outpatient services giant years before the scandal broke in 2003, according to an amended class-action lawsuit brought by stockholders and bondholders.

The complaint filed Jan. 8 in U.S. District Court in Birmingham, Ala., alleges that HealthSouth's former accounting firm, Ernst & Young, and investment banker, UBS Warburg, knew about the fraud at the company as investors continued to unwittingly buy HealthSouth stocks and bonds.

"The complaint describes how a former senior HealthSouth executive had discussions with HealthSouth's auditors and investment bankers which indicated that they knew about the fraud," said Sean Coffey, an attorney for Retirement Systems of Alabama, the lead plaintiff among bondholders. "This is pretty direct evidence."

But representatives of the financial institutions denied the allegations.

UBS spokesman Mark Hengel said the company had "no reason to believe anyone at UBS had any knowledge of the fraud at HealthSouth." And a written statement from Ernst & Young said former HealthSouth executives had engaged "in a criminal conspiracy designed to deceive us as the company's auditor, so our inclusion in these suits is not justified."

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