HealthSouth Corp. has settled its case against an investment bank and will receive $133 million. The investment bank is accused of aiding a massive corporate fraud at the Birmingham-based company. UBS, an investment bank that sold shares and bonds of the physical therapy company to investors, will pay $100 million cash and forgive $33 million it was owed by HealthSouth. The agreement settles the UBS portion of a lawsuit filed against the bank, other HealthSouth advisers and Richard Scrushy. It was alleged in the suit that UBS investment bankers knew HealthSouth faked its books to the tune of $2.6 billion from 1996 through 2002 to boost profits and trigger performance bonuses for top executives. UBS analysts enthusiastically recommended that investors buy HealthSouth shares with knowledge that the stock was being propped up by phony numbers.
The case began in 2002, when shareholder Wade Tucker sued Scrushy, UBS, auditor Ernst & Young and others, claiming their actions harmed the company. The action was a derivative lawsuit filed by the Plaintiff on behalf of HealthSouth. The claims against Scrushy are set for trial in January and the portion of the case against Ernst & Young is still pending. More than a dozen former HealthSouth employees and executives pleaded guilty to faking profits, assets and cash balances after prosecutors closed in. The HealthSouth fraud cut the company’s shares by more than 90%, to less than 10 cents each, after it was publicized. The company acknowledged bankruptcy was a threat, and tens of millions of dollars were spent to reconstruct the financial books. The $133 million recovery represents about 20% of HealthSouth’s 2007 profit, which was $653 million.
Under the terms of an earlier settlement HealthSouth reached with investors who filed a class action lawsuit, 25% of the UBS settlement proceeds will go to the class members. The rest will go to pay down HealthSouth debt. Much of that debt was taken out under Scrushy to pay for acquisitions. Those acquisitions, the government said during the criminal trial, were merely smokescreens designed to hide the fraud. Former Supreme Court Justice Ralph Cook, assisted by John Haley, both from the Hare, Wynn firm in Birmingham, represented HealthSouth in this case and did a very good job.
Source: Birmingham News