RSA Tapped as Lead HealthSouth Bond Suit Plaintiff

June 27, 2003 ( - A federal judge in Birmingham, Alabama has named that state's public pension system as the lead plaintiff in suits filed by bondholders against HealthSouth Corp, stemming from losses caused by a huge accounting fraud.

US District Judge Karon Bowdre said The Retirement Systems of Alabama (RSA) would represent all bondholders that have filed suit against the Birmingham-based medical services and rehabilitation company, according to an Associated Press report.

David Bronner, RSA chief executive officer, asked for the position in April, listing his fund’s HealthSouth losses at more than $18 million amid a fraud the government contends totaled some $2.5 billion (See  Bronner: Make RSA Lead HealthSouth Plaintiff).

In all, Alabama fund managers said HealthSouth issued more than $3 billion worth of bonds during the period the government contends HealthSouth was overstating earnings to meet Wall Street forecasts. Eleven former HealthSouth executives have since pleaded guilty to fraud charges, including all five of the company’s chief financial officers.

RSA was also a key player in the recent US Airways turnaround. The RSA invested $240 million in equity and $500 million in debt and will hold the lead investor position with a 36.6% stake and receive eight seats on a newly reconstituted 15-member Board of Directors. It will receive 19.7 million shares, as well as the entire issue of new preferred shares. That will give the RSA 72% voting control, due to the combination of common and preferred holdings. (See US Airways Reaches Tentative Agreements with Unions, RSA ).