HealthSouth to pay millions to investors

HealthSouth Corp. has agreed to pay $445 million to settle class-action securities fraud lawsuits brought by investors, potentially resolving one of the most daunting legal challenges faced by the outpatient services giant in the wake of a massive accounting scandal.

Under the agreement, which was pending court approval when it was announced Feb. 23, the company would pay $215 million in common stock and stock warrants, which give investors the right to buy stock at a certain price by a certain date. Meanwhile, HealthSouth's insurers would pay $230 million in cash to investors represented in the complaints. Additionally, those investors would receive 25% of any recoveries HealthSouth gets from any future judgments from civil cases against its former chief executive, Richard Scrushy, its former auditors, Ernst & Young, or its former investment bank, UBS.

HealthSouth did not admit any wrongdoing in the settlement, which the company said ended the bulk of its major legal issues. "This proposed settlement represents a major milestone in HealthSouth's recovery and a powerful symbol of the progress we have made as a company," said Jay Grinney, president and chief executive of the Birmingham, Ala.-based company, in a written statement.

But Patrick Coughlin, an attorney for the plaintiffs, said the settlement did not mark the end of the battle. "We will continue to fight vigorously against HealthSouth auditors and underwriters who were central to HealthSouth's fraudulent behavior."

It has been a long road to recovery for HealthSouth since federal agents raided its offices in March 2003, in an investigation that eventually revealed a $2.7 billion accounting fraud. Fifteen former executives pleaded guilty to charges related to the investigation, while another was convicted in court. Scrushy, accused of masterminding the plot, endured a five-month trial before he was acquitted.

Since then, the company has engaged in massive restructuring to settle legal woes. Last year it agreed to pay $100 million to settle a Securities and Exchange Commission lawsuit stemming from the fraud.

Later the company said it would pay $25 million to settle a suit over losses to its employee retirement fund. In late 2004, HealthSouth agreed to pay $325 million to settle charges that it defrauded Medicare and other federal programs.

The company is still engaged in a legal battle with Scrushy over the ousted leader's compensation.