Risk Management

HealthSouth Avoids Indictment

''Prosecution would likely have pushed this company into bankruptcy,'' says a U.S. attorney, acknowledging HealthSouth's ''continued commitment to ...
Stephen TaubMay 18, 2006

HealthSouth has agreed to pay $3 million and spend three years on probation in a deal with the Department of Justice, which will not indict the company on criminal charges stemming from its $2.7 billion accounting scandal, reported Bloomberg.

The $3 million will go to a U.S. Postal Inspection Services fund used to investigate consumer fraud. The company has also agreed to cooperate with all government requests for information and provide “access to HealthSouth’s facilities, documents, and employees,” noted the wire service. Any violation, including deliberately providing “false, incomplete or misleading information” would make HealthSouth “subject to prosecution.”

According to the Associated Press, the company also agreed to maintain an extensive system of training to prevent future fraud and to establish internal controls, including an office of inspector general with a staff of at least five people with full access to the company’s books.

The agreement “acknowledges the comprehensive corporate governance and compliance reform which has and is transpiring at HealthSouth, and its continued commitment to cooperate with the Department of Justice through self-disclosure,” U.S. Attorney Alice Martin reportedly said, in a statement. “Prosecution would likely have pushed this company into bankruptcy.”

In a statement, HealthSouth chairman Jon Hanson said: “We are extremely pleased and grateful to have reached this non-prosecution agreement with the Department of Justice. With the removal of the threat of an indictment, HealthSouth takes a giant leap forward in recovering from the effects of the massive accounting fraud perpetrated against the company and its investors by members of the company’s former management.”

Bloomberg speculated that the settlement could help HealthSouth stock, which currently trades over the counter, find its way back on the New York Stock Exchange.

The Birmingham News also reported that HealthSouth is “evaluating if a name change is warranted, given the extent to which our name has been tarnished,” in the words of chief executive officer Jay Grinney during an earnings call. “Anything they can do to distance themselves from the past is a positive thing,” SG Cowen Securities analyst Kemp Dolliver told the News.