Fraud Is Alleged in Troubled Sale of 2 Valley Hospitals : Health care: Firm is accused of inflating price of facilities it sold to a company that later defaulted on a state-insured loan. Sale may cost taxpayers $167 million.
State officials have alleged fraud in the sale of two San Fernando Valley hospitals to a company that later defaulted on a state-insured loan, potentially saddling California taxpayers with the $167-million debt.
The accusation is contained in a claim filed this week in the bankruptcy case of Nu-Med Inc. in federal court in Los Angeles.
The state alleges that Nu-Med inflated the price of the two hospitals when it sold them to Triad Healthcare Inc. In late 1990, when Triad was negotiating for a loan guarantee from the state’s Cal-Mortgage program, three of the company’s executives were also top executives of Nu-Med.
“These key management personnel, serving a dual role as high ranking officers of both Nu-Med and Triad, apparently caused Nu-Med to supply financial information and assumptions that were used by consultants engaged by such management personnel to support the apparently inflated value assigned to the assets,” the state asserts in court papers.
The claim alleges fraud and misrepresentation by Nu-Med.
Triad officials said the state’s action took them by surprise. In a statement Wednesday, Triad Chairman Sanford Weiss said he recently was assured by the director of Cal-Mortgage, Dennis Fenwick, that there was no evidence of “any wrongdoing in connection with the transaction.” Fenwick could not be reached Wednesday.
The company also denied that Triad representatives, including those who also served as Nu-Med officers, supplied misleading information about the true value of the hospitals. “At no time did any representative of Triad attempt to influence determination of fair market value of the assets,” the statement said.
Nu-Med officials could not be reached for comment.
In another development, the Assembly Health Committee has scheduled a Jan. 18 hearing to examine “conflict of interest issues that were raised by the loan guarantee for Triad Healthcare,” a committee spokeswoman said Wednesday.
Among those called to testify are David Werdegar, director of Cal-Mortgage’s parent agency, the Office of Statewide Health Planning and Development (OSHPD); Larry Meeks, OSHPD’s director at the time Triad’s loan guarantee was approved; Stuart Marylander, who was president of Triad and vice chairman of Nu-Med during the negotiations, and Vincent Forte, a member of Cal-Mortgage’s advisory loan committee at the time.
Forte abstained from voting and acted as Triad’s broker in the deal. At the time, Cal-Mortgage had no policy prohibiting loan committee members from representing applicants.
Forte, a vice president of the investment banking firm Goldman Sachs and Co., has resigned from the Cal-Mortgage loan committee.
Marylander, who is no longer an executive with Triad or Nu-Med, declined through a spokeswoman to comment Wednesday.
“The Triad default raises very troubling questions about the Cal-Mortgage loan process,” Committee Chairman Burt Margolin (D-Los Angeles) said Wednesday through a spokeswoman. “It’s a financial disaster that the state can ill-afford.
The focus of this investigation will be how this loan guarantee ever won state approval given the apparent conflict of interest that existed.” The spokeswoman said Margolin was referring to relationships between members of the advisory loan committee and Triad officials.
The Triad loan was the largest ever guaranteed by the 25-year-old Cal-Mortgage program. Its default last July forced state officials to suspend the Cal-Mortgage program, which many nonprofit health care organizations have relied upon to obtain low-interest construction loans.
The default also jeopardizes the future of the two hospitals Triad bought with the loan proceeds, Sherman Oaks Hospital and Health Center in Sherman Oaks, and West Valley Hospital and Health Center in Canoga Park.
If Triad is unable to resume loan payments, a Cal-Mortgage loan guarantee requires the state treasury to cover the debt.
Cal-Mortgage officials appointed by Gov. Pete Wilson have been critical of the Triad deal, which was approved in the waning days of the George Deukmejian Administration.
The Times reported last month that the advisory loan committee recommended and Meeks approved Triad’s loan guarantee despite warnings from a Cal-Mortgage staff analyst that the relationship between Triad and Nu-Med did not appear to be “arm’s length” and that the actual value of the two hospitals was uncertain.
Fenwick said the bankruptcy court action is necessary to protect the state’s financial interests as Triad’s largest creditor.