HealthSouth in Settlement With SEC
HealthSouth Corp. said Wednesday that it would pay $100 million over two years to settle charges brought by the Securities and Exchange Commission when corporate fraud at the medical services chain was exposed in March 2003.
The SEC’s civil action accused both HealthSouth and fired Chief Executive Richard Scrushy of overstating earnings by $1.4 billion since 1999. After further investigation, that number grew to $2.7 billion over seven years, beginning in 1996.
The settlement, which applies only to the Birmingham-based company, is to be paid in five installments over two years beginning in the fourth quarter of 2005.
“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.
“HealthSouth has successfully put another issue behind us,” Grinney said. “We look forward to refocusing our time and resources on what we do best -- serving the needs of our patients.”
Company officials said HealthSouth had taken provisions for the settlement, and that its payments would not compromise funds it needed to operate. The company operates rehabilitation and diagnostic imaging centers nationwide.
According to the company, HealthSouth will retain consultants to monitor governance, internal control and accounting practices and policies as part of the settlement. In a separate SEC filing, the company said it would create an inspector general position.
The company, which brought in a new team led by Grinney for the post-Scrushy effort to avoid a bankruptcy filing, also agreed to provide training and education to appropriate officers and would continue to cooperate with the SEC and Department of Justice in their investigations.
Scrushy is the first CEO accused of violating the Sarbanes-Oxley corporate reporting law, passed three years ago after a string of business scandals. He also is accused of conspiracy, fraud, false reporting and money laundering. The SEC’s civil lawsuit was halted by U.S. District Judge Inge Johnson in Birmingham until Scrushy’s criminal trial ends. Many of the SEC’s allegations mirror those that U.S. prosecutors tried to prove in Scrushy’s case.
Although large, the $100-million accord trails the record-setting penalties the SEC has imposed on public companies since the collapse of Enron Corp. In March, Time Warner Inc. agreed to pay $300 million to settle an agency probe, and Qwest Communications International Inc. last year accepted a plan to pay $250 million to settle allegations of accounting fraud. Neither company admitted or denied wrongdoing.
The SEC’s five commissioners have debated whether to levy fines on public companies, with two of the three Republicans arguing that shareholders ultimately bear the costs.
SEC Chairman William H. Donaldson, a Republican who is stepping down this month, has sided with the two Democrats, saying the fines are necessary to deter future corporate misconduct.
The commissioners voted 3 to 2 in favor of the HealthSouth fine in a closed-door meeting Monday, people familiar with the deliberations said. Donaldson joined the Democrats to approve it over opposition from his fellow Republicans, the sources said.
John Heine, an SEC spokesman in Washington, declined to comment on the vote.
The $100-million settlement “is within the range of what I would have expected,” for HealthSouth, Jefferies & Co. analyst Frank Morgan said Wednesday.
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Associated Press and Bloomberg News were used in compiling this report.
