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This web page examines the multitude of court actions
taken against or by HealthSouth, and documents some of the
larger settlements. Litigants include government agencies,
shareholders, employees, bondholders, auditors, insurers and
many others. These are additional to those described on the
other pages.
When the accounting fraud was exposed HealthSouth commissioned its own "independent inquiry" which did not find evidence of fraud. It did find evidence that documents had been shredded.
AN INTERNAL REPORT by Houston's Fulbright & Jaworski LLP showed that shredded documents were found in a room that also held the files of four former HealthSouth executives, the (The Wall Street) Journal said, citing the report. It said some of the documents appeared to be e-mails.The basket of shredded documents was found nine days after the SEC began its probe of the operator of physical therapy, diagnostic imaging and outpatient surgery centers, according to the paper.
HealthSouth documents shredded www.msnbc.com/news October 14, 2003
Other legal proceedings
Multiple additional law suits related to what happened in particular
areas are described on most of the other HealthSouth pages. This web
page describes the large residue remaining although there is some
overlap.
HealthSouth's involvement in and settlement of court actions alleging Medicare fraud are addressed on a separate web page. In January 2005 it settled a whistle blower initiated case for US $325 million without admitting culpability.
Prosecuting HealthSouth for Fraud
Well actually no! This case is unlike any other. The company has committed a US $4 billion fraud but it is not going to be prosecuted for the crime. Instead they elected to prosecute the individual executives responsible for setting up the fraud, and the staff who did what they were told to do. This became a farce when the person almost everyone believed was primarily responsible was acquitted. The other conspirators got lenient sentences because they pleaded guilty and gave evidence. There were no penalties commensurate with the magnitude of the crime.
Once the scandal blows over it can be business as usual.
It's a $2.7 billion dollar fraud.The government alleges that Scrushy was in charge. Fourteen of his underlings have plead guilty -- but the company is not going to be held criminally responsible? How did that happen?
It's a wonder, isn't it? Corporate Crime Reporter http://www.corporatecrimereporter.com accessed June 2004
HealthSouth Corp., Birmingham, Ala., won't face charges for accounting fraud that occurred from 1996 to 2003 if the rehabilitation giant follows the stipulations in a nonprosecution agreement with the Justice Department. Under the agreement, which expires in 2009, HealthSouth will pay $3 million to U.S. Postal Inspection Services Consumer Fraud Fund. - - - - - - - - In a statement, Martin said prosecution would have likely bankrupted the company. HealthSouth has already agreed to pay $445 million to settle an investors' class-action lawsuit and pay $100 million to the Securities and Exchange Commission.
HealthSouth avoids prosecution, will pay $3 million Modern Healthcare May 18, 2006
View the agreement at http://www.usdoj.gov/usao/aln/Docs/May%202006/healthsouthnonpros2.pdf
Security and Exchange Commission's (SEC) actions
The SEC commenced actions against HealthSouth and some of its staff including Scrushy. Civil Action No CV-03-J-0615-S was commenced against HealthSouth and Scrushy in the northern district of Alabama. It sought injunctions, restitutions and penalties. The action was temporarily suspended against Scrushy during his fraud trial but HealthSouth finally settled for a paltry US $100 million in June 2005.
After Scrushy was acquitted the judge asked the SEC to show cause why the case against him should not be thrown out. The SEC elected to proceed and lodged revised charges some of which were thrown out. The judge sent the case for mediation and it was settled for US $81 million but Scrushy was credited with US $71 million so only had to pay US $10 million which he claimed he no longer had the funds to pay for because of his large legal fees. Perhaps this was a signal to the shareholders still pursuing him. The SEC had originally sought US $785 million but now claim to be satisfied with the outcome!
In September 2002, the Securities and Exchange Commission (the "SEC") notified us that it was conducting an investigation of trading in our securities that occurred prior to an August 27, 2002 press release concerning the impact of new Medicare billing guidance on our expected earnings. On February 5, 2003, the United States District Court for the Northern District of Alabama issued a subpoena requiring us to provide various documents in connection with a criminal investigation of us and certain of our directors, officers, and employees being conducted by the United States Attorney for the Northern District of Alabama. On March 18, 2003, agents from the Federal Bureau of Investigation (the "FBI") executed a search warrant at our headquarters in connection with the United States Attorney's investigation and were provided access to a number of financial records and other materials. The agents simultaneously served a grand jury subpoena on us on behalf of the criminal division of the Department of Justice ("DOJ"). Some of our employees also received subpoenas.On March 19, 2003, the SEC filed a lawsuit captioned Securities and Exchange Commission v. HealthSouth Corp., et al., CV-03-J-0615-S, in the United States District Court for the Northern District of Alabama. The complaint alleges that we overstated earnings by at least $1.4 billion since 1999, and that this overstatement occurred because our then-Chairman and Chief Executive Officer, Richard M. Scrushy, insisted that we meet or exceed earnings expectations established by Wall Street analysts.
-------------------------
On June 6, 2005, the SEC approved a settlement (the "SEC Settlement") with us relating to this lawsuit. Under the terms of the SEC Settlement, we have agreed, without admitting or denying the SEC's allegations, to be enjoined from future violations of certain provisions of the securities laws. We have also agreed to pay a $100 million civil penalty and disgorgement of $100 to the SEC in installments over two years, beginning in the fourth quarter of 2005.
HealthSouth form 10-K filing with the SEC June 27, 2005
HealthSouth Corp., Birmingham, Ala., will pay $100 million to settle a Securities and Exchange Commission lawsuit over alleged accounting fraud. The company did not admit to wrongdoing under the settlement, which was filed in U.S. District Court in Birmingham. - - - - - - - - -. Under the SEC settlement, HealthSouth will pay $12.5 million by Oct. 15 and the full amount outstanding by October 2007. The SEC alleged that HealthSouth overstated earnings by $1.4 billion in a lawsuit made public in March 2003. Other estimates later put the overstatement at about $2.7 billion.
HealthSouth to settle SEC suit for $100 million Modern Healthcare June 8, 2005
On September 3, 2003, the Securities and Exchange Commission filed a complaint against two former Chief Financial Officers ("CFOs") of HealthSouth Corporation, Michael Martin and Malcolm McVay.
-------------------------------
The complaint further alleges that Martin sold HealthSouth stock while knowing that the share price was inflated artificially due to the materially false financial statements.
----------------------
The complaint asks the Court to issue permanent injunctions and to order disgorgement, prejudgment interest thereon and civil penalties against each defendant. The Commission also seeks orders barring Martin and McVay from serving as officers and directors of publicly-held companies in the future.
Litigation Release No. 18339 U.S. Securities and Exchange Commission September 10, 2003
The Securities and Exchange Commission has been asked to show by July 7 why its lawsuit against Richard Scrushy, founder and former chief executive officer of HealthSouth Corp., shouldn't be dismissed, according to a filing made in U.S. District Court, Birmingham. Inge Johnson, the presiding judge in the case, issued the motion Tuesday after a jury in the same court acquitted Scrushy on 36 charges related to the Birmingham, Ala.-based rehabilitation company's $2.6 billion accounting fraud scandal.
SEC must persuade judge to hear Scrushy civil suit Modern Healthcare Jun 29, 2005
Thursday, the SEC will file court papers seeking a chance to pursue its case against Scrushy for the earnings inflation at HealthSouth Corp. The agency wants to forbid Scrushy, 52, from serving as an officer or director of another public company. It is also seeking $786 million in penalties and disgorgement.But whether the SEC will succeed where criminal authorities stumbled is far from clear, experts said.
----------------------
"It's extremely rare that this situation happens, and it's something nobody at the SEC will be happy about," said Gregory S. Bruch, a former agency lawyer and a partner at Foley & Lardner LLP in the District. "Judges generally don't like the government taking multiple shots at people on the same set of facts."Civil claims such as those filed by the SEC must be proved by a preponderance of the evidence -- a far lower burden than the reasonable-doubt standard necessary for a criminal conviction. Experts added that the agency is charging Scrushy with failing to follow accounting procedures and other new allegations not contained in his criminal indictment.
SEC to Try To Pursue Scrushy in Civil Court : Judge Asked Agency Why Case Should Not Be Dismissed The Washington Post July 5, 2005
U.S. District Judge Inge Johnson, ruling after a closed-door meeting with attorneys, gave the SEC until Sept. 7 to file an amended suit against Scrushy, who denies having anything to do with what the government has described as a $2.7 billion fraud.
Judge Lets SEC File New HealthSouth Suit The Washington Post (Associated Press) August 18, 2005
A judge sent the Securities and Exchange Commission's lawsuit against former HealthSouth Chief Executive Officer Richard Scrushy to mediation, and ordered mediation to begin by Nov. 4, unless the parties seek an extension. The SEC requested a jury trial - - - .
Judge sends SEC case against Scrushy to mediation Modern Healthcare September 16, 2005
A judge dismissed two fraud counts in the Securities and Exchange Commission's civil lawsuit against former HealthSouth Corp. Chief Executive Officer Richard Scrushy in connection with massive accounting fraud at the company. The SEC has 15 days to appeal the ruling. Mediation in the case is scheduled to begin Jan. 18. Scrushy's lawyers had requested that all six counts be dismissed. U.S. District Judge Inge Johnson in Birmingham, Ala., threw out the two claims, saying the charges were not sufficiently specific to Scrushy.
Judge tosses two of six SEC claims against Scrushy Modern Healthcare November 30, 2005
The former chief executive of HealthSouth, Richard M. Scrushy, who was acquitted of criminal charges that he orchestrated a $2.7 billion fraud, could go on trial in April 2007 on related civil claims brought by the Securities and Exchange Commission.Judge Inge P. Johnson of Federal District Court in Birmingham, Ala., told the S.E.C. that it could refile the fraud charges against Mr. Scrushy that she dismissed on Tuesday.
HealthSouth Files 2004 Results With S.E.C. The New York Times December 3, 2005
A federal judge has set trial for April 2 in Birmingham in a lawsuit filed by the Securities and Exchange Commission against Scrushy over the HealthSouth scheme, in which 15 former executives pleaded guilty and another was convicted by jurors.A judge dismissed civil fraud claims against Scrushy, but he still is accused of false recordkeeping and other counts.
Scrushy Facing More HealthSouth Trials Newsday.com (Associated Press) June 29, 2006
Fired HealthSouth Corp. Chief Executive Richard Scrushy reached an $81 million settlement to end a government lawsuit in a huge accounting fraud, but he will pay less than $10 million -- maybe much less -- as his attorneys contend he is running out of money.
----------------------------
While not admitting that he did anything wrong, Scrushy agreed to give up $77.5 million that the government claimed he profited from in the $2.7 billion fraud at HealthSouth, and he agreed to pay another $3.5 million in civil penalties.
-----------------------
- - - - Scrushy will get credit for $71.5 million he already has paid or forfeited in three other cases linked to HealthSouth. That leaves Scrushy owing a balance of $9.5 million, but the total could be reduced further by other cases."It could go down to zero," said Scrushy attorney David Russell.
If the final amount doesn't go that low, Russell said, Scrushy might not be able to pay anything else because he already has spent more than $30 million on attorney fees.
---------------------------
The SEC initially said it was seeking as much as $785 million from Scrushy.
Scrushy settles SEC lawsuit for $81M USA Today (Associated Press) April 24, 2007
The settlement also prohibits Mr. Scrushy from serving as an officer or director of a publicly traded company for at least five years.
Scrushy to Pay $81 Million to Settle S.E.C. Lawsuit The New York Times April 24, 2007
Multiple law suits were filed by groups of shareholders. Some were derivative actions in which shareholders claimed against others in the name of the company. Many of these were consolidated.
Derivative Litigation
Between 1998 and 2004, a number of lawsuits purporting to be derivative actions (i.e., lawsuits filed by shareholder plaintiffs on our behalf) were filed in several jurisdictions, including the Circuit Court for Jefferson County, Alabama, the Delaware Court of Chancery, and the United States District Court for the Northern District of Alabama. Most of these lawsuits have been consolidated as described below:All derivative complaints filed in the Circuit Court of Jefferson County, Alabama since 2002 have been consolidated and stayed in favor of the first-filed action captioned Tucker v. Scrushy, No. CV-02-5212, filed August 28, 2002. Although Tucker is ongoing, the Circuit Court has stayed discovery pending the criminal trial of Richard M. Scrushy. The Tucker complaint names as defendants a number of former HealthSouth officers and directors. Tucker also asserts claims on our behalf against Ernst & Young LLP, UBS Group, and UBS Investment Services, as well as against MedCenterDirect.com, Source Medical Solutions, Inc., Capstone Capital Corp., Healthcare Realty Trust, and G.G. Enterprises.
When originally filed, the primary allegations in the Tucker case involved self-dealing by Richard M. Scrushy and other insiders through transactions with various entities allegedly controlled by Mr. Scrushy. The complaint was amended four times to add additional defendants and include claims of accounting fraud,improper Medicare billing practices, and additional self-dealing transactions. The Second Amended Complaint, filed on March 21, 2003, added Ernst & Young LLP as a defendant and alleged it was liable for negligently, wantonly, and/or recklessly failing to perform its professional obligations as an independent auditor. The Third Amended Complaint, filed on August 8, 2003, added UBS as a defendant and alleged that it was liable for breaching its fiduciary duties to us and for aiding and abetting the accounting fraud by "falsely promoting" our stock despite knowledge of inflated financial information. The other consolidated cases contain similar claims.
On September 8, 2003, a derivative lawsuit captioned Teachers Retirement Sys. of Louisiana v. Scrushy, C.A. No. 20529-NC, was filed in the Delaware Court of Chancery. The complaint contains allegations similar to those made in the Tucker case, class claims, as well as a request for relief seeking an order compelling us to hold an annual meeting of stockholders. On December 2, 2003, we announced a settlement of the plaintiff's claims seeking an annual meeting of stockholders. The Court of Chancery has stayed the remaining claims in favor of earlier-filed litigation in Alabama. This case was not consolidated with In re HealthSouth Corp. Shareholders Litigation.
On November 19,
2004, a derivative lawsuit captioned Campbell v. HealthSouth
Corp., Scrushy, et al., CV-04-6985, was filed in Circuit Court of
Jefferson County, Alabama, alleging that we wrongfully refused to
file with the Internal Revenue Service refund requests for
overpayment of taxes and seeking an order allowing the plaintiff
to file claims for refund of excess tax paid by us. This suit was
filed just prior to the voluntary dismissal of a similar suit
brought by the same plaintiff in the United States District Court
for the Northern District of Alabama. We have informed the
plaintiff that we intend to file any appropriate applications for
tax refunds within the applicable time periods, consistent with
the advice of our tax counsel. This lawsuit was not consolidated
with the Tucker case because it involves different claims. It is
still pending.
HealthSouth form 10-K
filing with the SEC June 27, 2005
One of the first targets of shareholders was the bonuses awarded to Mr Scrushy - bonuses he would not have received had the fraud not occurred. He was forced to pay these back.
A judge in Alabama ruled Tuesday that the former chief executive of HealthSouth, Richard M. Scrushy, must repay his former company more than $47.8 million in bonuses.
--------------------------
Judge Horn ruled that Mr. Scrushy was not entitled to the payments, which included both regular annual bonuses and those paid if the company met performance targets.
---------------------
Judge Horn said in his ruling that Mr. Scrushy was unjustly awarded the bonuses regardless of whether he participated in the fraudulent activities or even if he knew about them."Knowledge is immaterial under the law of unjust enrichment," the judge wrote.
--------------------------
Kile Turner, a lawyer for Mr. Scrushy, said he would appeal the ruling.
--------------------------
The lawsuit was filed in August 2002 by a shareholder, Wade Tucker, before the fraud at HealthSouth became public. The suit was consolidated with other shareholder suits after a federal investigation exposed the fraud in 2003.
------------------------------
"The money goes to the company," Mr. Somerville said. "We are delighted with the result that will return the money to the company and hence the shareholders."
Judge Orders Ex-HealthSouth Chief to Repay Nearly $48 Million The New York Times January 4, 2006
HealthSouth Corp. founder Richard Scrushy won a delay from the Alabama Supreme Court, which ruled that he didn't have to pay a $47.8-million judgment against him that was due next week, Scrushy said in a statement.
HealthSouth's Scrushy Wins Delay on Payment LA Times (Bloomberg) February 9, 2006
Fired HealthSouth Corp. CEO Richard Scrushy must repay $47.8 million in bonuses he wrongly received during a massive financial fraud at the rehabilitation and medical services chain, the Alabama Supreme Court ruled Friday.
Management Liability Ex-HealthSouth CEO must pay, court rules Tulsa World August 27, 2006
Among other things, Scrushy still must give his first sworn testimony about the fraud: He didn't take the stand in either of his criminal trials."It should be very interesting," said Doug Jones, a former federal prosecutor representing HealthSouth stockholders.
-------------------------
Scrushy also was named in about 40 more cases filed by investors against the company. Consolidated into two massive cases involving stockholders and bondholders, attorneys are swapping evidence and holding talks to get those cases ready for court, too.
-------------------------
In all, hundreds of millions of dollars are at stake for Scrushy, who has estimated the legal bills from his first trial at more than $20 million.
Scrushy Facing More HealthSouth Trials Newsday.com (Associated Press) June 29, 2006
Scrushy repaid a lone from HealthSouth with shares but those shares were inflated by the fraud. Shareholders went after him demanding repayment in cash.
Former HealthSouth Corp. chief executive Richard Scrushy has been ordered to repay the company in cash for a $25 million loan he used to buy HealthSouth shares.Scrushy borrowed the money in May 1999, paying $5.78 a share for 4.4 million shares. In July 2002, HealthSouth authorized him to repay the debt with company stock.
The price of those shares was artificially inflated by misleading financial statements issued under Scrushy's management and the former CEO was responsible for the accuracy of those statements, Leo Strine, vice chancellor of the Delaware Chancery Court, said in issuing the order Monday.
Former HealthSouth chief ordered to repay $25 million loan San Francisco Chronicle (AP) November 26, 2003
A U.S. District Court judge in Birmingham, Ala., rejected the company's request that the government release $25 million of Scrushy's funds to cover the loan or force Scrushy to put up collateral to secure the loan.
For now, no action on $25 million Scrushy loan Modern Healthcare's Daily Dose Dec. 15, 2003
Attorneys for fired HealthSouth Corp. CEO Richard Scrushy asked the Delaware Supreme Court to rehear a case in which he was ordered to pay the company $25 million to settle a loan he previously repaid with stock.A three-judge panel earlier this month upheld a lower court's ruling on the loan issue. The ruling in a shareholder lawsuit said Scrushy had to repay a $25 million loan with cash, not stock whose value had been pumped up by inflated earnings reports when he used it to repay the loan.
Ex-HealthSouth CEO Appeals to Higher Court LA Times (Associated Press) April 29, 2004
A Delaware Chancery Court judge reaffirmed that former HealthSouth Corp. chief Richard Scrushy must pay the company $17.1 million to satisfy a November 2003 judgment from shareholder litigation. But the judge denied shareholders' request for a restraining order to prevent Scrushy from selling 3.27 million shares of HealthSouth stock that he had put up as a security
Court: Scrushy still must repay HealthSouth for loan Modern Healthcare July 13, 2005
Richard Scrushy paid HealthSouth Corp., Birmingham, Ala., $17 million to settle a shareholders' suit over a loan Scrushy received from the company while serving as its chief executive officer.
Scrushy repays HealthSouth $17 million for old loan Modern Healthcare July 21, 2005
Multiple shareholders commenced Securities litigation actions against HealthSouth, Scrushy, Ernst and Young, Citigroup, and UBS as well as their staff. These have been consolidated. It is interesting that US $8 billion became US $445 million! But this is only HealthSouth and there is more to come. HealthSouth and the shareholders are joining forces against Scrushy, UBS and Ernst and Young.
Everything isn't settled on the legal front either. There is still an $8 billion class action lawsuit, which also targets Citigroup and others, charging that investors were misled. (Given that 17 HealthSouth executives have been charged in the accounting fraud -- and 10 sentenced -- this may be easy to prove.
HealthSouth's Payment Plan The Motley Fool December 31, 2004
Securities Litigation
On June 24, 2003, the United States District Court for the Northern District of Alabama consolidated a number of separate securities lawsuits filed against us under the caption In re HealthSouth Corp. Securities Litigation, Master Consolidation File No. CV-03-BE-1500-S (the "Consolidated Securities Action"). The Consolidated Securities Action included two prior consolidated cases (In re HealthSouth Corp. Securities Litigation, CV-98-J-2634-S and In re HealthSouth Corp. 2002 Securities Litigation, Consolidated File No. CV-02-BE-2105-S) as well as six lawsuits filed in 2003. Including the cases previously consolidated, the Consolidated Securities Action comprised over 40 separate lawsuits. The court divided the Consolidated Securities Action into two subclasses:
On January 8, 2004, the plaintiffs in the Consolidated Securities Action filed a consolidated class action complaint. The complaint names us as a defendant, as well as more than 30 of our current and former employees, officers and directors, the underwriters of our debt securities, and our former auditor. The complaint alleges, among other things, (1) that we misrepresented or failed to disclose certain material facts concerning our business and financial condition and the impact of the Balanced Budget Act of 1997 on our operations in order to artificially inflate the price of our common stock, (2) that from January 14, 2002 through August 27, 2002, we misrepresented or failed to disclose certain material facts concerning our business and financial condition and the impact of the changes in Medicare reimbursement for outpatient therapy services on our operations in order to artificially inflate the price of our common stock, and that some of the individual defendants sold shares of such stock during the purported class period, and (3) that Richard M. Scrushy instructed certain former senior officers and accounting personnel to materially inflate our earnings to match Wall Street analysts' expectations, and that senior officers of HealthSouth and other members of a self-described "family" held meetings to discuss the means by which our earnings could be inflated and that some of the individual defendants sold shares of our common stock during the purported class period. The consolidated class action complaint asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act, and claims under Sections 10(b), 14(a), 20(a) and 20A of the Exchange Act.
We have moved to dismiss in part the claims against us. We continue discussions with the parties to this litigation and await a ruling on the identity of the lead plaintiff and lead counsel in the Stockholder Securities Action.
On March 17, 2004, an individual securities fraud action captioned Amalgamated Gadget, L.P. v. HealthSouth Corp., 4-04CV-198-A, was filed in the United States District Court for the Northern District of Texas. The complaint made allegations similar to those in the Consolidated Securities Action and asserted claims under the federal securities laws and Texas state law based on the plaintiff's purchase of $24 million in face amount of 3.25% convertible debentures. The court denied our motion to transfer the action to the United States District Court for the Northern District of Alabama, and also denied our motion to dismiss. This action has been settled by the agreement of the parties and dismissed with prejudice.
On November 24,
2004, an individual securities fraud action captioned Burke v.
HealthSouth Corp., et al., 04-B-2451 (OES), was filed in the
United States District Court of Colorado against us, some of our
former directors and officers, and our former auditors. The
complaint makes allegations similar to those in the Consolidated
Securities Action and asserts claims under the federal securities
laws and Colorado state law based on plaintiff's alleged receipt
of unexercised options and his open-market purchases of our stock.
By order dated May 3, 2005, the action was transferred to the
United States District Court for the Northern District of Alabama,
where it remains pending.
HealthSouth form 10-K
filing with the SEC June 27, 2005
On August 2, 2004 the RSA, together with the other Bondholder
Plaintiffs, the Houston Firefighters' Relief and Retirement Fund
and the State Universities Retirement System of Illinois, filed
their Consolidated Amended Class Action Complaint for Violations
of the Federal Securities Laws setting forth the legal theories
and claims. The Bondholder Complaint asserts 53 Counts of
securities law violations against HealthSouth; the Company's
senior officers, including Scrushy; the entire HealthSouth Board
of Directors; the Company's former auditors, Ernst & Young;
and every investment bank that sold HealthSouth's debt to
investors, including the lead investment bankers, Salomon Smith
Barney (in its various iterations prior to becoming Citigroup
Global Markets, a subsidiary of Citigroup) and UBS Warburg,
together with the lead investment bankers at those two firms and
the primary securities analyst at UBS.
Bernstein Litowitz Berger
&Grossmann LLP wwwsite
http://www.blbglaw.com/cases/healthsouth_securities.html Accessed
August 2007
Investors
are seeking hundreds of millions of dollars more from UBS, Ernst
& Young and Scrushy. U.S. Judge Karon Bowdre excluded those
parties in mediation. The firms asked her to dismiss the fraud
claims against them. Bowdre said Feb. 9 she'd probably deny that
request.
Under the
settlement, securities investors also would get 25 percent of any
judgments that HealthSouth recovers in pending lawsuits against
Scrushy, Ernst & Young, and UBS, the former primary investment
bank.
HealthSouth Settles
Investor Fraud Suits for $445 Mln Bloomberg News February 23,
2006
A final, $445 million settlement between HealthSouth Corp. and
investors was announced Wednesday to end class-action lawsuits
stemming from a huge fraud at the health services
company.
Under the
agreement, which goes to a judge for approval, the
Birmingham-based company will pay $215 million in cash, stocks and
warrants. Insurance companies will pay the remaining $230
million.
HealthSouth, investors
finalize fraud settlement : Company to pay shareholders $445
million MSNBC TV NBC News (The Associated Press) Sept 27,
2006
HealthSouth (HLS) said it got final court approval of a $445
million settlement with plaintiffs in a securities fraud class
action.
"We are very
pleased to have final court approval of these settlements and to
put this issue behind us," said CEO Jay Grinney. "We now can focus
our legal resources on asserting our claims against the company's
former chief executive officer; former auditors, Ernst &
Young; and former primary investment bank, UBS, for the role each
of them played in the fraud perpetrated against HealthSouth and
its shareholders."
---------------------
The settlement agreement requires HealthSouth to indemnify the
settling insurance carriers for any amounts that they become
legally obligated to pay to any nonsettling defendants. The
defendants didn't admit to any wrongdoing.
HealthSouth Settlement
OK The Street.com January 11, 2007
Former
HealthSouth CEO Richard Scrushy is not a party to this settlement,
nor does the settlement resolve the investors' pending claims
against other defendants, including HealthSouth's former auditor,
Ernst & Young LLP, HealthSouth's former banker, UBS, and
former officers of the company who have pleaded guilty to crimes
related to the HealthSouth scandal. One significant aspect of the
settlement is that HealthSouth, RSA, and the other plaintiffs have
expressly agreed to jointly prosecute their respective claims
against Ernst & Young, UBS, and certain other defendants that
the company, as well as the investors, have sued.
Bernstein Litowitz Berger
&Grossmann LLP wwwsite
http://www.blbglaw.com/cases/healthsouth_securities.html Accessed
August 2007
Lead
Plaintiffs allege that Ernst & Young accepted millions of
dollars in purported auditing and consulting fees in exchange for
turning a blind eye to the Company's accounting fraud. Similarly,
Plaintiffs allege that UBS profited from its role in concealing
HealthSouth's fraud through orchestrating deceptive financial
transactions, withholding information about the true financial
condition of the company, and making false statements about
HealthSouth's financial condition, including the publication of
false analyst reports aimed at deceiving investors into believing
that HealthSouth was a healthy and legitimate company. All the
while, Lead Plaintiffs allege, Ernst & Young and UBS were
fully aware, and indeed an integral part, of the historic fraud
perpetrated on HealthSouth's stock holders. Evidence presented in
connection with the guilty pleas and criminal convictions of 15
former Company employees has buttressed Lead Plaintiffs'
prosecution of this case.
Labaton Sucharow & Rudoff LLP web site http://www.labaton.com/en/cases/In-re-HealthSouth-Securities-Litigation.cfm
Accessed Aug 2007
Scrushy has been found guilty and liable for US$2.88 billion because he was responsible for the fraud. Scrushy does not have this! What will happen now to all these actions?
Scrushy is a defendant in a federal securities class-action lawsuit, which names UBS AG, HealthSouth's investment bank, as well. Investors seek billions of dollars to recoup what they lost in the drop in share value after the fraud came to light. Ernst & Young LLP, the company's auditor, proposed in March to settle its part for $109 million.
HealthSouth's Scrushy Liable in $2.88 Billion Fraud (Update3) Bloomberg June 18, 2009
HealthSouth vs Scrushy and other staff
Scrushy lodged an action based on his 2002 contract with Healthsouth. HealthSouth counter sued. I do not know what happened.
Richard M. Scrushy filed two lawsuits against us in the Delaware Court of Chancery. One lawsuit, captioned Scrushy v. HealthSouth Corp., C.A. No. 20357-NC, filed on June 10, 2003, sought indemnification and advancement of Mr. Scrushy's legal fees. The other lawsuit, captioned Scrushy v. Gordon, et al., C.A. No. 20375, filed June 16, 2003, named us and our then-current directors as defendants and petitioned the court to enjoin the defendants from excluding Mr. Scrushy from board meetings and from conducting the business of HealthSouth exclusively through the meetings of the Special Committee. The second lawsuit also sought access to certain information, including meetings of the Special Committee. Both lawsuits were voluntarily dismissed without prejudice.
HealthSouth form 10-K filing with the SEC June 27, 2005
Former HealthSouth Corp. CEO Richard M. Scrushy is suing the company he founded, seeking more than $70 million for what he says was a breach of contract stemming from his March 2003 firing.
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Scrushy claims in the suit filed Wednesday that his employment agreement with HealthSouth should remain in force given his June acquittal on 36 criminal counts related to the fraud. He still faces civil lawsuits by the Securities and Exchange Commission and HealthSouth investors.
Scrushy Sues HealthSouth for $70 Million The New York Times (Associated Press) December 16, 2005
Mr. Scrushy's lawyers argue that the 1998 contract was replaced by a contract in September 2002. The new contract stipulated that HealthSouth could terminate Mr. Scrushy only if he were to be found guilty of a felony or of fraud at the company.
Scrushy Sues HealthSouth Over Dismissal The New York Times December 17, 2005
HealthSouth accused ousted Chief Executive Richard Scrushy of trying to "pillage" the company of more than $100 million in court papers filed Wednesday and said he isn't due anything for his firing.Responding to a state court suit filed earlier this month by Scrushy, the rehabilitation chain said in a counterclaim that Scrushy was responsible for a massive earnings overstatement that nearly drove it to ruin.
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In the countersuit, HealthSouth sought an unspecified amount from Scrushy and said his last employment contract, from 2002, was invalid.
Scrushy plundered firm, HealthSouth says in filing Seattle Times (Associated Press) December 29, 2005
HealthSouth Corp., Birmingham, Ala., filed a countersuit against Richard Scrushy, saying fraud that occurred under Scrushy's reign as chief executive officer and the resulting litigation has cost the company about $580 million.
HealthSouth sues Scrushy to recoup costs of fraud Modern Healthcare December 29, 2005
Under his contract HealthSouth was required to pay some of Scrushy's legal expenses.
Separately, the Wall Street Journal reported that HealthSouth must pay $17 million of Scrushy's legal bills stemming from his fraud trial and acquittal, under an arbitrated agreement. Scrushy had contended the company was required by their employment contract to cover his full $32 million in legal costs. A HealthSouth spokeswoman and a spokesman for Scrushy would not confirm the Journal's report and said terms of the arbitrated agreement were confidential.
Former HealthSouth CFO gets three years' prison Modern Healthcare September 13, 2006
HealthSouth was also involved in litigation with a number of its previous staff.
Litigation by Former Officers
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On August 22, 2003, Anthony Tanner, our former Secretary and Executive Vice President-Administration and Secretary, filed a petition in the Circuit Court of Jefferson County, Alabama, captioned In re Tanner, CV-03-5378, seeking permission to obtain certain information through the discovery process prior to filing a lawsuit. That petition was voluntarily dismissed with prejudice on August 11, 2004. On December 29, 2004, Mr. Tanner filed a lawsuit in the Circuit Court of Jefferson County, Alabama, captioned Tanner v. HealthSouth Corp., CV-04-7715, alleging that we breached his employment contract by failing to pay certain retirement benefits. The complaint requests damages, a declaratory judgment, and a preliminary injunction to require payment of past due amounts under the contract and reinstatement of the claimed retirement benefits.On December 23, 2003, Jason Hervey, one of our former officers, filed a lawsuit captioned Hervey v. HealthSouth Corp., et al., CV-03-8031, in the Circuit Court of Jefferson County, Alabama. The complaint sought compensatory and punitive damages in connection with our alleged breach of his employment contract. We settled this lawsuit in 2005.
On June 10, 2004, we filed a collection action in the Circuit Court of Jefferson County, Alabama, captioned HealthSouth Corp. v. James Goodreau, CV-04-3619, to collect unpaid loans in the original principal amount of $55,500 that we made to James A. Goodreau, our former Director of Corporate Security, while he was a HealthSouth employee. Mr. Goodreau has asserted counterclaims against us seeking monetary damages in an unspecified amount and equitable relief based upon his contention that he was promised lifetime employment with us by Mr. Scrushy. This case is still pending.
On August 30, 2004, we filed a collection action in the United States District Court for the Northern District of Alabama, captioned HealthSouth Corp. v. Daniel J. Riviere, CV-04-CO-2592-S, to collect unpaid loans in the original principal amount of $3,163,421 that we made to Daniel J. Riviere, our former President - Ambulatory Services Division, while he was a HealthSouth employee. Mr. Riviere filed a six-count counterclaim against us on April 5, 2005 seeking
(1) severance benefits exceeding $2 million under a written employment agreement dated March 18, 2003, (2) a declaratory judgment that the non-compete clause in his employment agreement is void, (3) damages in an unspecified amount based on stock allegedly purchased and held by him in reliance on misrepresentations made by Richard M. Scrushy, (4) $500,000 in lost profits based allegedly on us forcing him to sell shares of our common stock after he was terminated, (5) damages in an unspecified amount based on our alleged conversion of the cash value of certain insurance policies after his termination, and (6) set-off of any award from his counterclaim against unpaid loans we made to him. On April 5, 2005, Mr. Riviere commenced a Chapter 7 bankruptcy case in the U.S. Bankruptcy Court for the Northern District of Florida, Case No. 05-30718-LMK, and this lawsuit is stayed pending resolution of the bankruptcy proceedings.
HealthSouth form 10-K filing with the SEC June 27, 2005
There has been a country wide scandal in the USA because of the backdating of options given to management to a time when they were low. This meant that management received bigger bonuses and shareholders were defrauded. The possibility that Scrushy did this was raised. This does not seem to have been followed up.
Options received by Scrushy, whom the company fired in 2003 and whom federal government charged with criminal conduct, appear to have been awarded at low points in HealthSouth's stock price, according to a Wall Street Journal study.
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The findings come amid a flurry of federal investigations into other companies for possible backdating of options for top executives. These companies include semiconductor equipment maker KLA-Tencor Corp. <KLAC.O>, Altera Corp. <ALTR.O> and Analog Devices Inc. <ADI.N>
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Scrushy also never exercised any of the "unusually timed" options between 1995 and 2002, but did exercise options granted earlier, the Journal reported.
HealthSouth options practice raises issue Reuters May 31, 2006
HealthSouth was sued by its own workers and settled. Its insurers went to court claiming that insurance policies should be recinded because of deception. It was also in conflict with the corporate owners from whom it leased some of its facilities. These conflicts in which HealthSouth seems to have been at fault illustrate its continuing aggressive behaviour.
ERISA Litigation
In 2003, six lawsuits were filed in the United States District Court for the Northern District of Alabama against us and some of our current and former officers and directors alleging breaches of fiduciary duties in connection with the administration of our Employee Stock Benefit Plan (the "ESOP"). These lawsuits have been consolidated under the caption In re HealthSouth Corp. ERISA Litigation, Consolidated Case No. CV-03-BE-1700-S. The plaintiffs filed a consolidated complaint on December 19, 2003 that alleges, generally, the fiduciaries to the ESOP breached their duties to loyally and prudently manage and administer the ESOP and its assets in violation of sections 404 and 405 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"), by failing to monitor the administration of the ESOP, failing to diversify the portfolio held by the ESOP, and failing to provide other fiduciaries with material information about the ESOP.
HealthSouth form 10-K filing with the SEC June 27, 2005
HealthSouth Corp. and its insurers agreed to pay $25 million to settle lawsuits by workers over losses in their company retirement fund, according to documents made public yesterday.HealthSouth, the largest U.S. provider of rehabilitation-medicine services, would pay $7 million, and the insurers would pay $18 million, the company said in a securities filing.
HealthSouth settles lawsuits by workers The Philadelphia Inquirer Jul. 30, 2005
Pursuant to an Amended Class Action Settlement Agreement entered into on March 6, 2006, all parties have agreed to a global settlement of the claims in the ERISA Action. Under the terms of this settlement, Michael Martin, a former chief financial officer of the company, will contribute $350,000 to resolve claims against him, Richard Scrushy, former chief executive officer of the company, and our insurance carriers, will contribute $3.5 million to resolve claims against him, and HealthSouth and its insurance carriers will contribute $25 million to settle claims against all remaining defendants, including HealthSouth.
HealthSouth Form 10-K filing with Sec March 29,2006
Insurance Coverage Litigation
In 2003, approximately 14 insurance companies filed complaints in state and federal courts in Alabama, Delaware, and Georgia alleging that the insurance policies issued by those companies to us and/or some of our directors and officers should be rescinded on grounds of fraudulent inducement. The complaints also seek a declaration that we and/or some of our current and former directors and officers are not covered under various insurance policies. These lawsuits challenge the majority of our director and officer liability policies, including our primary director and officer liability policy in effect for the claims at issue. Actions filed by insurance companies in the United States District Court for the Northern District of Alabama were consolidated for pretrial and discovery purposes under the caption In re HealthSouth Corp. Insurance Litigation, Consolidated Case No. CV-03-BE-1139-S. Three lawsuits filed by insurance companies in the Circuit Court of Jefferson County, Alabama have been consolidated with the Tucker case for discovery and other pretrial purposes. Cases related to insurance coverage that were filed in Georgia and Delaware have been dismissed. We have filed counterclaims against a number of the plaintiffs in these cases alleging, among other things, bad faith for wrongful failure to provide coverage.
HealthSouth form 10-K filing with the SEC June 27, 2005
On February 22, 2006, we announced that we had reached a preliminary agreement in principle with our insurance carriers to resolve our claims against each other. In the proposed settlement, the carriers will contribute $230 million in cash toward the settlement of both the Consolidated Securities Action and the Tucker derivative litigation. However, there can be no assurances that a final settlement agreement can be reached.
HealthSouth Form 10-K filing with Sec March 29,2006
HealthSouth Corp., Birmingham, Ala., continued to see fallout from the multibillion-dollar accounting fraud at the company, as a real estate investment trust received court permission to terminate its lease of two rehabilitation hospitals to the company.- - - - - - - Senior Housing Properties sought to terminate the lease as part of a 2003 lawsuit arguing that HealthSouth paid lower rent based on false financial information. - - - - - - - - -Senior Housing Properties said it lowered HealthSouth's rent in January 2002 to $8.7 million from $10.3 million and extended the lease to 2011 from 2006.
HealthSouth to lose hospital lease after court ruling Modern Healthcare September 30, 2005
In October 2004, after failed efforts to reach a settlement and because HealthSouth continued to withhold financial information required under the lease, SNH terminated HealthSouth's lease. In November 2004, HealthSouth sued SNH to prevent the lease termination. As previously reported in September 2005, the trial court ruled that SNH's lease termination was proper. Today's ruling is a follow up court decision which directs HealthSouth to account to SNH for all profits which it earned and earns from the hospitals until a new tenant selected by SNH replaces HealthSouth.
Court Orders HealthSouth to Pay Senior Housing Properties Trust Profits from Hospitals and to Transfer Hospitals Operations Business Wire January 18, 2006
Under the terms of the settlement announced today, HealthSouth has agreed to pay an increased rent for the period it operated the SNH owned hospitals and all appeals and pending litigation between SNH and HealthSouth and their various affiliates will be dismissed. Also, HealthSouth will reimburse certain transition costs in connection with the transfer of the hospital lease from HealthSouth to Five Star.
Senior Housing Properties Trust Settles Litigation with HealthSouth Business wire November 8, 2006
HealthSouth's reports disclose further legal actions against it and by it.
We have been named as a defendant in two lawsuits brought by individuals in the Circuit Court of Jefferson County, Alabama, Nichols v. HealthSouth Corp., CV-03-2023, filed March 28, 2003, and Hilsman v. Ernst & Young, HealthSouth Corp., et al., CV-03-7790, filed December 12, 2003. The plaintiffs allege that we, some of our former officers, and our former auditor engaged in a scheme to overstate and misrepresent our earnings and financial condition. The plaintiffs seek compensatory and punitive damages. On March 24, 2003, a lawsuit captioned Warren v. HealthSouth Corp., et al., CV-03-5967, was filed in the Circuit Court of Montgomery County, Alabama. The lawsuit, which claims damages for the defendants' alleged negligence, wantonness, fraud and breach of fiduciary duty, was transferred to the Circuit Court of Jefferson County, Alabama. Each of the lawsuits described in this paragraph has been consolidated with the Tucker case for discovery and other pretrial purposes.On June 30, 2004, two physical therapy providers in New Jersey filed a class action lawsuit captioned William Weiss Physical Therapy, et al., v. HealthSouth Corporation, et al., Docket No. BER-L-10218-04 (N.J. Super.) in the Superior Court of New Jersey. The nine count complaint alleges certain unfair trade practices in offering physical therapy services in violation of the New Jersey Physical Therapy Licensing Act of 1983. This case has been dismissed with prejudice.
On May 13, 2003, Plano Hospital Investors, Inc. ("Plano") filed a complaint captioned Plano Hospital Investors, Inc., et al., v. HealthSouth Corp., et al., Cause No. 219-1416-03, in the 219th Judicial District Court of Collin County, Texas. Plano is a limited partner in Collin County Rehab Associates Limited Partnership, a partnership in which we, through wholly owned subsidiaries, are the general partner and hold limited partner interests. Plano alleges that we conducted unauthorized and improper sweeps of partnership funds into a HealthSouth centralized cash management account instead of a partnership account, that we improperly received late partnership distributions, and that the predecessor general partner took a negative capital contribution improperly increasing its interest, and upon the sale of that interest to us, our interest, in the partnership. The plaintiff seeks injunctive relief and unspecified damages. The parties to this lawsuit are currently engaged in settlement negotiations.
On December 28, 2004, we commenced a collection action in the Circuit Court of Jefferson County, Alabama, captioned HealthSouth Medical Center, Inc. v. Neurological Surgery Associates, P.C., CV-04-7700, to collect unpaid loans in the original principal amount of $275,000 made to Neurological Surgery Associates, P.C. ("NSA"), pursuant to a written Practice Guaranty Agreement. The purpose of the loans was to enable NSA to employ a physician who would bring necessary specialty skills to patients served by both NSA and our acute-care hospital in Birmingham, Alabama. NSA has asserted counterclaims that we breached verbal promises to lease space and employees from NSA, to pay NSA for billing and coding services performed by NSA on behalf of the subject physician-employee, and to pay NSA to manage the subject physician-employee.
On April 15, 2004, Klemett L. Belt, Jr. filed a complaint captioned Belt v. HealthSouth Corp., CV-2004-02517, in the Second Judicial District Court of Bernalillo County, New Mexico. Mr. Belt, a former executive officer and director of Horizon/CMS Healthcare Corporation, entered into a Non-Competition and Retirement Agreement with Horizon/CMS that we subsequently assumed in our acquisition of Horizon/CMS pursuant. Mr. Belt alleged in his complaint that he was entitled to retirement benefits, life insurance and, in the event of certain events of default, liquidated damages pursuant to a contractual provision requiring that the life insurance policies be fully paid and permitting Mr. Belt to receive a lump sum cash payment in lieu of certain unpaid retirement benefits. Mr. Belt alleges that we defaulted under the terms of the agreement due to our nonpayment of insurance policy premium payments beginning on December 31, 2003. As a result of our alleged default under the agreement, Mr. Belt sought liquidated damages in lieu of retirement benefits, payment of insurance policy premiums, amounts sufficient to compensate Mr. Belt for excess income taxes, interest, expenses, attorneys' fees, and such other relief as may be determined by the court. We entered into a settlement agreement with Mr. Belt pursuant to which we must pay certain damages and relinquish our right to receive returned insurance premiums, if any, under a split dollar arrangement.
HealthSouth form 10-K filing with the SEC June 27, 2005
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History
This page first created Oct 2007 by
Michael
Wynne
minor update June 2009
