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Creditors of defunct AHERF to receive undisclosed settlement from accounting firm

| Wednesday, April 24, 2013, 12:17 a.m.

Lawyers would not say Tuesday how much money an accounting firm will pay to settle a 13-year-old lawsuit claiming it helped destroy one of the state's largest health care systems.

“It will result in a very significant recovery,” James Jones, one of the lawyers representing the unsecured creditor of the Allegheny Health Education and Research Foundation, said during a settlement hearing in Pittsburgh federal court.

The creditors in 2000 sued Coopers & Lybrand LLP, the predecessor of PricewaterhouseCoopers LLP, claiming that if auditors in 1996 and 1997 had informed AHERF's board about the foundation's true financial condition, it would have acted to avoid a bankruptcy that resulted in huge losses. The foundation's assets included the Allegheny General Hospital system.

AHERF, which once ran 14 hospitals and two medical schools and employed 31,000 people, filed for Chapter 11 bankruptcy protection in 1998, listing $1.3 billion in debt, in the largest U.S. nonprofit collapse. The foundation's assets included the Allegheny General Hospital system.

Over the course of bankruptcy proceedings, creditors filed more than 20,000 claims seeking more than $5.9 billion, records show. The bankruptcy court allowed collection on 11,703 claims that totaled about $806 million. As of 2011, its estate paid creditors about $250 million.

AHERF's flagship Allegheny General Hospital in the North Side was bought by West Penn Hospital in Bloomfield, forming West Penn Allegheny Health System. However, the AHERF insolvency contributed to rival UPMC's dominance in Western Pennsylvania health care.

U.S. District Judge David Cercone, in a joint session with U.S. Bankruptcy Judge Judith Fitzgerald, approved the settlement with PricewaterhouseCoopers.

The company disputes the method the committee used to calculate losses and denies liability in the settlement.

Joseph McDonough, a lawyer for PricewaterhouseCoopers, agreed the settlement amount is significant. He and Jones declined comment.

Jones said during the hearing that a trial could have lasted 40 days. Preparation for the case generated more than 200 depositions, 19 expert opinions and more than a million documents, he said.

The committee sent more than 3,500 notices to creditors about the proposed settlement, and none objected, he said.

Both sides agreed to keep the amount secret, and they discussed with Fitzgerald how to avoid releasing the amount in filings for related bankruptcy action.

The AHERF crash led to criminal charges by the state Attorney General's Office against former CEO Sherif Abdelhak, former chief financial officer David McConnell and former general counsel Nancy Wynstra, though the charges against Wynstra were dismissed.

Abdelhak, who drew 1,500 criminal charges, pleaded no contest to a single misdemeanor count of misusing endowment funds and served three months of an 11- to 23-month jail sentence.

McConnell entered an accelerated rehabilitative disposition program for nonviolent first-time offenders to avoid a trial set on one charge. The Securities and Exchange Commission fined McConnell $25,000 to settle fraud charges.

Brian Bowling is a staff writer for Trib Total Media. He can be reached at 412-325-4301 or bbowling@tribweb.com.

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