Attaining lead plaintiff status would mean Michigan would manage the litigation, negotiate potential settlements, and seek to maximize the amount recovered from the case, according to press release from Michigan Attorney General Mike Cox. The former lead plaintiff withdrew from the case – being held in the US District Court for the Northern District of Alabama – last November.
“We have an opportunity to seek a leadership role in redressing one of the most flagrant securities frauds perpetrated in United States history,” said Cox in the release. “Safeguarding pensions is a top priority for this office. We will do everything we can to ensure that employees aren’t cheated out of the pension that is rightfully theirs.”
HealthSouth, an outpatient surgery and rehab services provider, is accused of implementing a scheme to falsify financial statements from April, 1996 to March, 2003. HealthSouth’s founder and CEO, Richard Scrushy, allegedly directed subordinates to fix any revenue shortfalls and income as well, according to the release. The lawsuit also alleges that the company’s auditor, Ernst & Young, knew of this practice in 1004, but ignored them in exchange for large fees. The suit also accuses the company’s underwriters of making false statements on its Registration Statements and Prospectuses. Certain individual defendants also sold more than 16.7 million shares of the company, resulting in $300 million in insider trading profits, according to the release.
“HealthSouth has admitted it overstated income by more than $2.8 billion, and wiped out every dollar of profit it ever reported as a public company,” said Treasurer Jay Rising. “As a result, Michigan’s Retirement Systems suffered losses of approximately $33 million. With today’s action, we are taking the appropriate steps to recoup what is rightly due to our employees and retirees, and to protect state pension funds.”
Of the 38 individual defendants, 15 have pleaded guilty to criminal violations of federal securities laws, according to the press release.
The State of Michigan Retirement System (SMRS) has more than $48 billion in assets, making it the 13 th largest public pension fund in the US.