April 29, 2010

             Lansing - Attorney General Mike Cox and Treasurer Robert Kleine today announced a $117 million national settlement with the financial services firm UBS and three former UBS employees:  Benjamin Lorello, William McGahan and Howard Capek.  It was alleged that in its role as HealthSouth's investment banker, UBS perpetrated a financial fraud against investors by misrepresenting HealthSouth's financial condition to the public.  Once HealthSouth's accurate financial picture was restated, investors and the Michigan Pension Fund lost millions.  The settlement, which requires approval by U.S. District Judge Karon Bowdre, will benefit the State of Michigan's pension fund and members of the class action against UBS.

"Retirees and pensioners lost millions of dollars in their hard-earned investments as a result of UBS's failure to present an honest financial picture to investors," Cox said.  "I will continue to stand up for defrauded Michigan pensioners and retirees and fight to recover every penny of their lost funds."

The class action case alleged that UBS through analyst reports gave a glowing assessment of HealthSouth's operations, finances, and future business prospects when in reality HealthSouth was not financially sound.  In fact, HealthSouth engaged in an immense and pervasive fraudulent scheme to inflate and manipulate the company's financial statements by creating false revenue and income, capitalizing normal operating expenses and failing to write off impaired assets.  HealthSouth has admitted to overstating its income by more than $2.8 billion, wiping out every dollar of profit it ever reported as a public company. 

"We have an obligation to the nearly 600,000 participants and beneficiaries who are depending on State Pension Funds for their retirement," said State Treasurer Kleine.  "This settlement sends a very clear message that we will take all necessary steps to recover lost funds and ensure our pensions do not fall victim to fraudulent activity."

 In 2006, the Attorney General and State Treasurer announced a $445 million settlement with HealthSouth. In 2009, they announced a $109 million settlement with Ernst & Young, HealthSouth's auditor, as a result of the fraud and losses to pensioners and investors nationwide.  It is alleged that the State of Michigan Retirement Systems lost an estimated $33 million as a result of UBS, HealthSouth, and Ernst & Young's wrongdoing.

Cox and Kleine have won other settlements for pensioners in Michigan, including a $24.5 million settlement against Tyco in May of 2009.  In 2008, Cox negotiated a settlement with Comerica Bank to release more than $1.4 billion in investments that were frozen due to the financial market troubles.  The Attorney General's office is currently pursuing cases against BearSterns and AIG.  The State of Michigan's pension system is one of the largest pension systems in the country, with combined assets of approximately $47.9 billion and representing 580,000 citizens and retirees.

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