HealthSouth Reaches Settlement in ESOP Lawsuit

July 29, 2005 ( - HealthSouth Corp. has reached a $25 million settlement in the class action lawsuit brought against it by participants in its Employee Stock Ownership Plan (ESOP).

The 2003 lawsuit claims that former chief executive Richard Scrushy, former chief financial officer William Owens and Senior Vice President Brandon Hale, breached their legal duties by knowingly overstating HealthSouth’s financial statements, rendering the company’s stock an inappropriate investment for the plan (See  HealthSouth Participants Sue ESOP Trustees ).   The Securities Exchange Commission (SEC) brought fraud charges against the company that year for overstating earnings by at least $1.4 billion since 1996.

According to the Associated Press, SEC documents say HealthSouth will pay $7 million of the settlement and insurance companies will pay $18 million.

The settlement does not address claims of fraud againstformer finance chiefs Aaron Beam, Mike Martin, or Owens, who all pleaded guilty in a $2.7 billion earnings overstatement, according to the AP.   It also does not address the suit still pending against Scrushy, who was acquitted of all criminal charges associated with federal prosecutors’ claims that he led the fraud scheme.