UBS to Pay HealthSouth $100M for Abetting Fraud

A chunk of the proceeds in the derivative lawsuit settlement will go to plaintiffs who sued the health-care company over accounting fraud.

HealthSouth Corp. says it will get $100 million from UBS in partial settlement of a derivative lawsuit over the investment bank’s role in the health-care provider’s $2.7 billion accounting fraud. The settlement agreement relates only to UBS and does not affect HealthSouth’s claims against its former CEO Richard Scrushy and other defendants in the same action, or against the company’s former independent auditor, Ernst & Young.

Under the settlement, HealthSouth will get not only $100 million in cash but also a release of all claims by UBS, including a judgment in favor of UBS that is currently on appeal before the U.S. Court of Appeals.

After deducting its costs and expenses in connection with the litigation, HealthSouth will pay 25 percent of the net proceeds to plaintiffs in the federal securities litigation. The company says it will use the balance of the proceeds to reduce long-term debt.

That payout is the result of the terms of an earlier settlement. In 2006 HealthSouth agreed to pay $445 million to settle several lawsuits against it and some of its former directors and officers. Under that deal, plaintiffs were to get 25 percent of any future judgments obtained by or on behalf of HealthSouth on claims against Scrushy, Ernst & Young, and UBS.

Under the new settlement, HealthSouth must also pay the “reasonable fees” of the plaintiffs’ attorneys.

“This settlement represents another milestone in HealthSouth’s recovery of damages sustained by the company under prior management,” says John Whittington, executive vice president, general counsel, and corporate secretary, referring to the latest deal. “HealthSouth and the derivative plaintiffs intend to diligently and vigorously pursue the claims against the remaining defendants, including Scrushy and Ernst & Young.”

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