District Court Gives Nod to $445M HealthSouth Settlement

September 29, 2006 (PLANSPONSOR.com) - The US District Court for the Northern District of Alabama approved the $445 million settlement in a class action suit filed against HealthSouth over securities fraud and related activity that occurred at the company during a 10-year period ending in 2003.

The class action suit against certain officers and directors of the Birmingham, Alabama company charged them with inflating and manipulating, for more than a decade, HealthSouth s financial statements by creating false revenue and income, capitalizing normal operating expenses, failing to write off impaired assets and defrauding Medicare and various private insurers, according to a press release from two law firms representing parties in the suit.

HealthSouth, which operates rehabilitation hospitals and surgical centers,   agreed to the $445 million settlement in February, agreeing to pay $215 million in common stock and saying insurance companies would pay out another $230 million in cash. Investors involved in class-action suits also will receive 25% of anything the company eventually gets in its lawsuit against fired chief executive Richard Scrushy, former auditor Ernst & Young and UBS, HealthSouth’s former investment bank (See HealthSouth Settles for $445M in Securities Fraud Suit ). Ernst & Young and UBS remain defendants in the securities fraud suit, according to the law firms’ press release.

The Alabama company filed a separate lawsuit against Scrushy – the founder of the company who was thrown out as HealthSouth’s chairman and chief executive in 2003 – after he sued the company for more than $100 million for compensation, severance, other benefits and legal fees (See HealthSouth Fires Back with $76M Scrushy Lawsuit ).

The District Court has scheduled a final settlement hearing on January 8, 2007, according to a press release from the law firms representing Central States Southeast and Southwest Area Pension Funds and New Mexico State Investment Council and the Educational Retirement Board of New Mexico.