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State Collects Multi-Million Dollar Settlement for Ill-Fated Hospital Purchases by Triad Healthcare

Attorney General's Office and Private Law Firm Successfully Defend Settlement in Supreme Court
Monday, February 8, 1999
Contact: (415) 703-5837

(SACRAMENTO) -- The State of California today received payment of over $35 million in partial settlement of its claim against Goldman, Sachs & Co. for participating in the ill-fated purchase of two San Fernando Valley hospitals by Triad Healthcare, Inc.

Triad Healthcare filed for bankruptcy within three years of arranging the $167 million hospital purchases of Sherman Oaks Community Hospital and West Valley Hospital through the Statewide Office of Health Planning and Development (OSHPD), leaving the state as mortgage lenders and California taxpayers potentially saddled with nearly all of the multi-million dollar debt.

The settlement package upheld by the California Supreme Court in January would recover funds from Goldman Sachs and officials of the defunct Triad Healthcare. The settlement was reached in August 1997 by the investment banking firm and OSHPD, but challenged by former Triad Healthcare president Stuart Marylander.

The state had charged Goldman Sachs with violating conflict-of-interest laws when the investment firm was paid to help sell the hospitals while one of its brokers sitting on a state advisory committee urged government officials to approve the state loan guarantee to purchase the medical facilities. Complicating matters, Triad Healthcare had been formed by former top executives of NuMed Corp., which sold the two hospitals to Triad Healthcare in 1990.

In addition to the $35 million settlement payment, Goldman Sachs has arranged to help OSHPD refinance hospital construction bonds to save an estimated $8 million for the state. Goldman Sachs also guaranteed that OSHPD would recover at least $20 million from Marylander, a private law firm and their insurers, or the investment banking firm would pay the amount to the state hospital financing agency.

In its lawsuit, the state also alleged that the investment banking firm failed to disclose a commission it received from the seller of the hospitals and participated in the valuation of the hospitals prior to their sale to Triad Healthcare. By agreeing to the settlement, Goldman Sachs did not admit to any violations of the False Claims Act.

Litigation against other parties arising out of the Triad transaction is pending in Los Angeles County Superior Court and the 2nd District Court of Appeals in Southern California.

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