|
In re HealthSouth Bondholder Litigation
(United States District Court for the
Northern District of Alabama {Southern Division})
Numerous securities class action lawsuits were filed
against HealthSouth and certain individual defendants and on June 24, 2003, the
Court appointed the Retirement Systems of Alabama (“RSA”) to serve as Lead Plaintiff
on behalf of all persons who were damaged as a result of their purchases of HealthSouth debt securities
between March 31, 1998 and March 18, 2003 (the “Class Period”). BLB&G was
appointed to serve as Co-Lead Counsel for the bondholder class.
BLB&G and Lead Plaintiffs Obtain $445 Million Recovery
for HealthSouth Investor Class
On February 22, 2006, the RSA announced that it and several other institutional plaintiffs leading investor
lawsuits arising from the corporate scandal at HealthSouth Corporation had
reached a class action settlement with HealthSouth, certain of the company’s
former directors and officers, and certain of the company’s insurance carriers. The total
consideration to be paid in the settlement is approximately $445 million,
comprised of $230 million in cash (to be paid by HealthSouth’s insurance
carriers) and a combination of HealthSouth stock and warrants
with an approximate value of $215 million.
Former HealthSouth CEO Richard Scrushy
is not a party to this settlement, nor does the settlement resolve the
investors’ pending claims against other defendants, including HealthSouth’s
former auditor, Ernst & Young LLP, HealthSouth’s former banker, UBS, and former
officers of the company who have pleaded guilty to crimes related to the
HealthSouth scandal. One significant aspect of the settlement is that
HealthSouth, RSA, and the other plaintiffs have expressly agreed to jointly
prosecute their respective claims against Ernst & Young, UBS, and certain other
defendants that the company, as well as the investors, have sued.
Click here
to view the full text of the RSA's February 22, 2006 press release.
A settlement fairness hearing was held on January 8, 2007
before the Honorable Karon Owen Bowdre, United States District Judge, at the United States Courthouse,
Northern District of Alabama, Southern Division. On January 11, 2007, Judge
Bowdre issued a Partial Final Judgment and Order of Dismissal with Prejudice,
approving the settlement and finding it fair, reasonable and adequate to the
Bondholder Class in all respects.
Click
here to view the
Partial Settlement of Class Action.
Background
On March 19, 2003, the investment community was stunned by the charges filed by the Securities
and Exchange Commission against Birmingham, Alabama based HealthSouth Corporation and its former
Chairman and Chief Executive Officer, Richard M. Scrushy, alleging a "massive accounting fraud."
Stephen M. Cutler, the SEC's Director of Enforcement, said "HealthSouth's fraud represents an
appalling betrayal of investors."
On August 2, 2004 the RSA, together with the other Bondholder Plaintiffs, the
Houston Firefighters’ Relief and Retirement Fund and the State Universities Retirement System
of Illinois, filed their
Consolidated
Amended Class Action Complaint for Violations of the Federal Securities Laws setting forth
the legal theories and claims. The Bondholder Complaint asserts 53 Counts of securities
law violations against HealthSouth;
the Company’s senior officers, including Scrushy; the entire
HealthSouth Board of Directors; the Company’s former auditors, Ernst & Young; and every
investment bank that sold HealthSouth’s debt to investors, including the lead investment
bankers, Salomon Smith Barney (in its various iterations prior to becoming Citigroup Global
Markets, a subsidiary of Citigroup) and UBS Warburg, together with the lead
investment bankers at those two firms and the primary securities analyst at UBS.
The facts supporting these claims are asserted in the
Joint Second Amended
Consolidated Class Action Complaint for Violations of the Securities Laws,
which Bondholder Plaintiffs filed together
with the plaintiffs in the HealthSouth Stockholder Litigation. The facts alleged in the
Joint Complaint, which are based on the extensive investigation conducted by Lead Counsel,
detail a massive scheme undertaken over the course of sixteen years to manipulate HealthSouth’s
financial statements by creating fictitious revenue and income, capitalizing normal operating
expenses, failing to write off impaired accounts receivable and other assets, and cheating
Medicare and private insurers. As set forth in the Joint Complaint, this scheme – the longest
running financial fraud in U.S. history – included regular meetings, referred to within
HealthSouth as “family meetings,” during which “family members,” operating under the
direction of former CEO Scrushy, decided how much income needed to be created, and how
to do so in order to meet Wall Street’s expected financial results. The Joint Complaint
also describes the roles Ernst & Young and the investment banks and bankers played in
HealthSouth’s financial fraud.
On July 19, 2006, the Bondholder Plaintiffs and the Stockholder Plaintiffs
filed an
Amendment to Joint Second Amended Consolidated Class Action Complaint. Click
here to view the
Amendment.
Both the complaints and associated appendices and exhibits can
be viewed by clicking on the below links:
Corrected Amendment to Joint Second Amended Consolidated Class Action Complaint (Filed July 24, 2006)
Consolidated Amended Class Action Complaint (Filed August 2, 2004)
Joint Second Amended Consolidated Class Action Complaint (Filed August 2, 2004)
Exhibit A to Joint Second Amended Consolidated Class Action Complaint (Filed August 2, 2004)
Exhibits to Joint Amended and Consolidated Class Action Complaint (Filed January 8, 2004)
Appendices to Joint Amended and Consolidated Class Action Complaint (Filed January 8, 2004)
Additional Appendices to Amended and Consolidated Class Action Complaint (Filed January 8, 2004)-
Appendix 8,
Appendix 9,
Appendix 10,
Appendix 11,
Appendix 12
On June 30, 2006, after hearing oral arguments on Defendants’
motions to dismiss on June 28, 2006, the Court issued several orders. Judge Bowdre sustained
Plaintiffs’ claims against Ernst & Young for violations of the Securities Act of 1933
(the “Securities Act”) for making false statements in the registration statements of
four HealthSouth debt offerings made between September 2000 and May 2002, as well as
Plaintiffs’ claims for violations of the Securities and Exchange Act of 1934 (the “Exchange Act”)
for conduct after July 30, 1999. Judge Bowdre also sustained Plaintiffs’ claims against UBS and
certain of its current and former employees for violation of the Exchange Act for conduct after
July 30, 1999. The Court reserved ruling on Plaintiffs’ Rule 10b-5 (a) and (c) claims against
all of the Underwriter Defendants, and also reserved ruling, pending input from the SEC, on Plaintiffs’
Securities Act claims against the Underwriter Defendants for making false statements in the registration
statements and in connection with the sale of the four bond issues.
HealthSouth has withdrawn the financial statements it issued during the Class Period, and
has admitted that its earning were overstated by over $2.8 billion, wiping out every dollar of
profit reported by HealthSouth as a public Company. Fifteen former employees – including its
most senior accounting officers, including every chief financial officer in HealthSouth's
history – already have pleaded guilty to criminal fraud charges.
Court-appointed Lead Counsel BLB&G represents the RSA in this action.
Firm partners Max Berger,
John "Sean" Coffey,
and
Jeffrey Leibell and
Senior Counsel
Beata Gocyk-Farber
are responsible for prosecuting
this action, along with the Alabama firms of Cunningham, Bounds, Yance, Crowder and Brown, L.L.C. and
Donaldson & Guin, L.L.C.
For additional information regarding this action contact us at
blbg@blbglaw.com.
|
