June 25 (Bloomberg) -- UBS AG sued Jefferies Group Inc., saying a “massive, premeditated raid” cost the Swiss bank at least 36 health-care investment bankers including unit chief Benjamin Lorello.

The departures, from June 17 to 21, amount to the “nearly complete lift-out” of the UBS health-care division, which ranked among the top three in the world and had $1 billion in revenue since 2005, UBS said in a June 22 petition in New York Supreme Court. UBS won a temporary court order this week barring Jefferies from recruiting employees from the group who have not already agreed to join.

The resignations are the latest blow to UBS, the European bank with the highest losses from the credit crisis, after saying in January it cut the bonus pool for 2008 by more than 80 percent. UBS had lost more than a dozen senior bankers to competitors this year, including Jeffrey Sine, head of technology, media, and telecommunications investment banking; and Rob Rankin, head of investment banking in Asia.

Bankers at large firms such as UBS “just want to go basics and do what they are good at and get a direct payout for it,” said Jason Kennedy, a London-based recruiter who runs Kennedy Associates. “The smaller firms currently believe they have a window of opportunity to compete with big investment banks.”

Jefferies declined to comment. The firm, based in New York, caters to mid-sized clients. It ranks 44th in the world this year as an adviser on mergers and acquisitions, according to data compiled by Bloomberg. UBS ranks ninth.

‘Re-Strengthening’

UBS spokesman Doug Morris said the Zurich-based company plans to name a new head of health-care soon. “We are committed to re-strengthening the health-care practice,” he said.

Lorello is known on Wall Street for advising Richard Scrushy, the former chief executive officer of HealthSouth Corp. Scrushy was acquitted in 2005 of charges that he ran an accounting fraud that almost bankrupted the company.

More recently, the UBS health-care team has advised clients including Eli Lilly & Co. on its $6.3 billion purchase of ImClone Systems Inc. last year.

The “lift-out” was led by Lorello and Sage Kelly, another senior UBS banker and managing director, after they became “disillusioned” with the leadership of the bank, especially after the bonus announcement in January, UBS said in the petition.

In early 2009, Lorello and Kelly sought to move their entire division to another firm or strike out on their own, UBS said. They considered moving the team to Deutsche Bank AG or Barclays Plc before settling on Jefferies in March, UBS said.

Substantial Increase

Pay for Lorello and Kelly was increased “substantially” in May, UBS said.

“UBS obtained this injunction to ensure that Jefferies adheres to legal obligations and standard industry practices, and UBS departing employees are held to their applicable notice periods and other legal and contractual obligations,” the firm said in a statement.

The departures include 11 managing directors and 6 executive directors, leaving UBS with 3 managing directors and 4 executive directors in the unit, UBS said.

Lorello took HealthSouth public in 1986 while he was at Salomon Inc., now a Citigroup Inc. unit, and continued to advise the firm after joining UBS in 1999. Scrushy was found liable for $2.88 billion in a civil trial last week.

Shareholder Lawsuit

UBS is a defendant in a shareholders’ class-action lawsuit that seeks billions of dollars from the investment bank, claiming it was involved in the HealthSouth fraud. U.S. District Judge Karon Bowdre in Birmingham, Alabama, denied UBS’s bid to throw out the case this year and certified the case as a class action, meaning thousands of shareholders can sue as a group.

Lorello has denied any wrongdoing in the past and couldn’t be reached today. Robert Anello, a lawyer who represents Lorello in the HealthSouth lawsuit, didn’t return a call for comment.

The plans to join Jefferies come six years after the New York Times published statements it attributed to Lorello labeling Jefferies a “low-quality firm.” Radiologix Inc., a company that operated diagnostic imaging centers, picked Jefferies over UBS in 2001 to lead the underwriting of bonds, the Times said.

Lorello said in a subsequent letter to Radiologix that “because Jefferies is such a low-quality firm, no major firms will co-manage to them,” according to the Times. The Times said it obtained correspondence between Lorello and the firm from an unidentified source and that Radiologix confirmed their authenticity.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Ambereen Choudhury in London at achoudhury@bloomberg.net

Last Updated: June 25, 2009 17:36 EDT