Accounting & Tax

HealthSouth Settles Lawsuits for $445M

Investors would receive $225 million in cash from the company's insurers and $215 million in stock and warrants.
Dave CookFebruary 23, 2006

HealthSouth Corp. has agreed to pay $445 million to settle investor lawsuits in connection with the company’s $2.7 billion accounting scandal.

The Birmingham, Alabama-based health-care services company and its insurers reached the tentative accord following court-ordered mediation, reported Bloomberg; the settlement still requires court approval. A HealthSouth spokesperson reportedly added that the company’s agreement does not cover former auditor Ernst & Young; former banker UBS Securities; or founder, former chairman, and former chief executive officer Richard Scrushy.

Scrushy, of course, was acquitted last June on all counts connected with the scandal; he now faces unrelated bribery charges. Fifteen former HealthSouth executives pleaded guilty to various charges; one was convicted at trial. The company itself previously reached settlements with the Securities and Exchange Commission and the Department of Justice.

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Under the agreement, investors would receive $225 million in cash from the company’s insurers and $215 million in HealthSouth stock and warrants. Specifically, according to Reuters, the latter would consist of 25.1 million common shares and 11-year warrants to buy a further 40.8 million shares.

The settlement “allows the company to move forward in its actions against its auditor and bank, as well as Richard Scrushy,” plaintiffs’ lawyer Patrick Coughlin told the wire service. Investors would also receive 25 percent of the net amount recovered from those defendants, Reuters also reported.

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