HealthSouth Settles for $445M in Securities Fraud Suit

February 23, 2006 ( - HealthSouth Corp. has agreed to a $445 million settlement of pending shareholder litigation.

The Associated Press reports that the health care company will pay $215 million in common stock and warrants under the global settlement, and insurance companies will pay 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.

The company filed a lawsuit against Scrushy in December, charging that he “systematically plundered” it by directing a multibillion dollar accounting fraud to inflate the company’s financial health and enrich himself (See  HealthSouth Fires Back with $76M Scrushy Lawsuit).

The company said attorneys were still working on a final version of the agreement, which must be approved by a judge, according to the AP report. HealthSouth did not admit any wrongdoing. Scrushy was acquitted on criminal charges in the fraud.

HealthSouth came near bankruptcy after the fraud was revealed in March 2003, but it has since reconstructed years of financial statements and renegotiated lending agreements.

In 2004, the company agreed to pay the US government $325 million to settle numerous allegations that it defrauded Medicare and other government health programs. The company last year agreed to pay $100 million over five years to settle a lawsuit filed by the Securities and Exchange Commission in 2003. That suit alleged an accounting fraud that eventually swelled to about $2.7 billion.

Last July HealthSouth reached a $25 million settlement in the class action lawsuit brought against it by participants in its Employee Stock Ownership Plan (See  HealthSouth Reaches Settlement in ESOP Lawsuit).

HealthSouth and Scrushy are still fighting in his wrongful firing suit attempting torecover more than $100 million for compensation, severance, other benefits and legal fees.