HealthSouth's Go-To Guy The collapse of HealthSouth is putting pressure on UBS Warburg.
By Andy Serwer

(FORTUNE Magazine) – Behind every great corporate empire they say, lies a filthy-rich investment banker. For HealthSouth, that banker is Ben Lorello, a brash Wall Street kingpin. Though HealthSouth is most closely associated with its recently deposed CEO and founder, Richard Scrushy, Wall Street insiders say the long arm of Lorello held considerable sway over the company.

Lorello heads UBS Warburg's health-care investment banking group. Wall Streeters say he and his partner William McGahan, who resigned suddenly on April 10, are the kinds of bankers who give bankers a bad name (that's saying something). In other words, they're fee-hungry, not particularly concerned about investors, and often ill-tempered. McGahan is known for his short fuse, Lorello for his insults (the latter was once overheard saying, in his gravelly monotone, "If you were a stock, I'd short you").

One of the centerpieces of the pair's practice was HealthSouth of Birmingham, which is alleged to have inflated earnings by more than $1.4 billion since 1999. Scrushy was recently fired and faces fraud and insider-trading charges. The stock sells for pennies; bankruptcy looms as a distinct possibility. And now the SEC's HealthSouth probe may be expanding. Eight weeks ago UBS received a subpoena from the agency; reportedly, other financial advisors did too. The question is whether Lorello & Co., who were said to be deeply involved in HealthSouth's operations, knew about the hanky-panky. Lorello and UBS declined to comment on the matter "because HealthSouth is currently subject to a number of investigations."

Lorello, who has been known to sport Master of the Universe attire, circa 1986 (dress shirts replete with French cuffs and English collars), came to UBS in 1999 for a reported three-year pay package worth $70 million. He and McGahan, who handled the day-to-day relationship with HealthSouth, helped it raise billions of capital, netting UBS millions in fees. Prior to that Lorello and McGahan worked to build HealthSouth deal by deal beginning in the mid-'80s, first at Smith Barney, then at Salomon Smith Barney.

HealthSouth wasn't the only Lorello client to run into trouble. MedPartners, Integrated Health Services, and Five Star Quality Care, for instance, have all had serious financial problems. "A company would tell me they were doing a deal," says a health-care analyst at a major New York hedge fund, "and I would say to management, 'Please tell me you aren't doing it with Ben Lorello.' Everything he touched blew up." A UBS spokesman said Lorello is undaunted by what he considers unfair criticism. The spokesman also pointed out that when banks are ranked on the aftermarket performance of stock offerings by their health-care clients, UBS is sixth out of 21.

In 1996, I interviewed Scrushy and Lorello and wrote of the latter that he " widely viewed as the premier health-care investment banker--as he'll be the first to tell you." In mid-April, I requested another interview with Lorello. He declined but did e-mail me back. "It's a very tough competitive environment right now," he wrote. Now there's one Ben got right. --Andy Serwer