HealthSouth Corp.'s announcement last week that it had reached a $100 million settlement with the Securities and Exchange Commission hasn't deflected attention from the criminal trial of its founder and former chief executive officer, Richard Scrushy.
The Birmingham, Ala.-based company agreed to pay the money over two years to settle allegations of accounting fraud. The SEC filed a lawsuit in March 2003 that said the company had overstated earnings by $1.4 billion starting in 1999. The superseding criminal indictment against Scrushy put the faked income at $2.64 billion dating back to 1996, while government lawyers in Scrushy's case have said the fraud was $2.7 billion.
"Scrushy is still the big story," said Steve Smith, a partner with the law firm Bryan Cave who's not affiliated with the case.
The Scrushy jury worked just two days last week and finished deliberations Wednesday without reaching a verdict. The jury didn't communicate with the judge and that could mean that they are coming closer to reaching a compromise, Smith said.
During the week, Scrushy's lawyers filed a motion with the Birmingham U.S. District Court regarding the jury, but the motion was filed under seal. Smith said there's no way to know what the motion involved, but it could cover improper jury actions or involve the time the judge is giving the jury to reach a verdict.
Since HealthSouth didn't admit wrongdoing, Smith said the SEC settlement won't affect Scrushy, who is also named as a defendant in an SEC lawsuit that is on hold until the criminal trial is complete.
Frank Morgan, an analyst covering HealthSouth with the investment banker Jefferies & Co., said the settlement was in the range of what he expected. It also didn't appear to catch investors by surprise because the company's stock price didn't fluctuate much, rising after the settlement was announced and then staying around $5.80 per share. HealthSouth has said it will restate its earnings for 2000 through 2003 before an investor meeting in late June, a move that -- after the SEC settlement -- will be HealthSouth's next step in returning to normal business practices, Morgan said.
HealthSouth General Counsel Greg Doody said in a news release that previous settlements -- a $73 million to $80 million bondholder consent settlement and a $325 million Justice Department settlement -- and last week's SEC settlement "put a substantial portion of our legal issues behind us."
Nevertheless, HealthSouth still has class-action litigation to settle, and there's no telling how much that could cost the company, said Warren Neel, executive director of the Corporate Governance Center at the University of Tennessee.
Some of the money in the SEC settlement will go to shareholders. Along with the payment, HealthSouth agreed to hire consultants and an inspector general who will have "unfettered access to the books and records of" HealthSouth, according to the settlement.