Shareholders of the former National Surgery Centers may not have agreed to sell the ambulatory surgery center company in 1998 had they known that the purchaser, HealthSouth Corp., had overstated its earnings by more than $1 billion, according to a class action suit filed late last week.
The two former NSC shareholders who filed the suit in federal court in Birmingham, Ala., are seeking class action status on behalf of others who sold their holdings to HealthSouth based on financial statements now believed to be fraudulent. They name HealthSouth, independent auditor Ernst & Young, and recently fired HealthSouth Chairman and CEO Richard Scrushy.
Ernst & Young audited and approved financial reports that HealthSouth is in the process of restating.
Birmingham-based HealthSouth bought National Surgery Centers in July 1998 for $590 million in stock. The more than 21.4 million HealthSouth shares given to NSC shareholders would be worth just $3 million at the current price of 14 cents.
The plaintiffs are seeking compensatory damages to make up the value lost because of allegedly falsified financial reports for 1997 and the first quarter of 1998. They also are asking the court to hold senior officers, including Scrushy, personally liable for their actions.
The Securities and Exchange Commission has charged HealthSouth with overstating its net income by $1.1 billion in 1997 and 1998 and by an additional $1.4 billion since 1999. Eleven former HealthSouth executives have pleaded guilty to securities fraud, including all five former CFOs.