HealthSouth to Pay $100M in Deal with SEC

HealthSouth Corp. will pay $100 million to settle charges brought against it by the Securities and Exchange Commission alleging that it cooked its books by more than $2 billion over several years.

In a March 2003 civil action, the SEC charged the health care services provider with violating securities laws by overstating its earnings by at least $1.4 billion in order to meet Wall Street earnings expectations. That number eventually grew to $2.7 billion.

The company's former chief executive, Richard Scrushy, is currently on trial for charges of violating corporate reporting laws, conspiracy, fraud, false reporting and money laundering. After almost two weeks of deliberations without a verdict, jurors in Scrushy's case are scheduled to resume work Monday.

Without admitting or denying the SEC's allegations, HealthSouth agreed to be barred from future violations of the securities laws and to retain consultants to review its policies and practices in the areas of governance, internal controls and accounting.

As part of the settlement, the company also agreed to continue to cooperate with the SEC and the Department of Justice in their respective ongoing investigations, to provide training and education to certain officers, and to create, staff and maintain the position of inspector general with the authority to hire a staff of at least five people.

Under the agreement, HealthSouth will pay the SEC $100 million in five installments over a two-year period beginning in the fourth quarter of 2005, which will be used to establish an investor fund.

"This agreement is both a major milestone in HealthSouth's recovery and a powerful symbol of the progress we have made as a company over the course of the last two years," HealthSouth president and CEO Jay Grinney said in a statement.

"This settlement with the SEC ... puts a substantial portion of our legal issues behind us and allows us to move forward," said Greg Doody, general counsel and secretary.

In December 2004, HealthSouth agreed to pay the United States $325 million to settle allegations that the company defrauded Medicare and other federal health care programs.

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