HealthSouth to Settle S.E.C. Charges; Scrushy Jury Pauses
By MILT FREUDENHEIM and KYLE WHITMIRE
BIRMINGHAM, Ala., June 8 - HealthSouth said Wednesday that it had reached an agreement with the Securities and Exchange Commission to pay $100 million to settle securities charges related to a $2.7 billion accounting fraud that occurred under the company's former management.
A federal jury here completed its 12th day of deliberations Wednesday in the criminal fraud trial of Richard M. Scrushy, HealthSouth's former chief executive. The jury does not plan to resume work until Monday, a pace that has raised eyebrows among some legal analysts.
HealthSouth's chief executive, Jay Grinney, said in an interview that part of the settlement money will go to HealthSouth investors who had losses when their shares plummeted after fraud was discovered in 2003. The settlement will be paid in five installments over two years.
The settlement removes one concern that has weighed on the stock price, analysts said. It follows refinancing agreements last year with bondholders and a $325 million settlement last December with the Justice Department on charges of overbilling Medicare.
The company has also been negotiating with bondholders to refinance an additional $245 million in debt that is due next Wednesday.
After word of the settlement began circulating on Wednesday afternoon, HealthSouth shares ended the day up 37 cents, or 6.85 percent, to close at $5.77 in over-the-counter trading.
HealthSouth, a chain of rehabilitation and out-patient surgery hospitals, said in a statement that the $100 million "may be used by the S.E.C. to establish an investor fund pursuant to the Fair Fund provision of the Sarbanes-Oxley Act of 2002," a law enacted to combat corporate fraud in the wake of the Enron debacle.
The company said the payments would have minimal financial impact; HealthSouth has annual revenue of about $4 billion.
HealthSouth said it had also agreed to hire consultants on governance, internal controls and accounting to review policies and practices put in place by the new management team; train its officials; and "continue to cooperate with the S.E.C. and Department of Justice in their respective, ongoing investigations."
Mr. Grinney said the agreement was "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 plans an S.E.C. filing this month to release restated financial results for 2000 and 2001, along with unreported results for 2002 and 2003, Mr. Grinney said. The report for 2004 will be made in the fourth quarter of this year, and the long-delayed shareholders' meeting will be held next spring, he said.
Under corporate rules, HealthSouth has been unable to remove Mr. Scrushy as a board member without action at a shareholders' meeting.
Mr. Scrushy's lead defense lawyer, Donald V. Watkins, said Wednesday that the HealthSouth settlement would have no bearing on his client's criminal case. "That's a separate matter, so we aren't much concerned with it," Mr. Watkins said.
More pertinent to the Scrushy case is the intermittent pace of the jury's deliberations. After jurors indicated last Friday that they were deadlocked, Federal District Judge Karon O. Bowdre ordered them to continue, reading a so-called Allen charge encouraging them to try again to reach a unanimous verdict.
Since then, the jury has deliberated only on Monday and Wednesday this week and will not resume until next Monday. At least two jurors had prepaid vacation trips for Thursday and Friday, a court official said.
Outside legal analysts remarked on the tepid pace of the proceedings.
"They haven't been subjected to any painful working conditions," said Christopher Bebel, a former federal prosecutor who specialized in white-collar crime. "It looks like trial by leisure and deliberation by leisure, and that is most likely to engender a long drawn-out discussion."
The relaxed schedule of the jury deliberations has followed a similarly paced trial. During the trial, which began in January, the court often recessed for days at a time, with some weeks having only one or two days of testimony. The deliberation schedule, which was set by the jury, lasts for six hours each day.
The pace may not matter as much as the stop-and-start nature of the jury's work, said Natalie Davis, a professor of political science at Birmingham-Southern College who runs a jury consulting firm and has not had a role in the Scrushy case.
"What's odd is the constant interruption to continued deliberations," Ms. Davis said. "I would expect when they come back on Monday morning, they almost have to reinvent the wheel every time."
Meanwhile, dozens of civil suits against Mr. Scrushy and HealthSouth are held up until the criminal case comes to a conclusion. That leaves victims of the fraud waiting, said Douglas Jones, a former United States attorney from Birmingham who now represents shareholders suing Mr. Scrushy and other former HealthSouth board members.
"At some point they need to stay here until they can get it done," Mr. Jones said. "Leaving everyone in limbo - the government, the shareholders and the company - doesn't seem the right thing to do."
http://www.nytimes.com/2005/06/09/business/09healthsouth.html
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