U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19280 / June 23, 2005
Accounting and Auditing Enforcement
Release No. 2263 / June 23, 2005
SECURITIES AND EXCHANGE COMMISSION V. HEALTHSOUTH CORPORATION ET AL., Civil Action No. CV-03-J-0615-S
FINAL JUDGMENT ENTERED AGAINST HEALTHSOUTH CORP., INCLUDES ANTI-FRAUD INJUNCTION, $100 MILLION PENALTY, CREATION OF INSPECTOR GENERAL REPORTING TO AUDIT COMMITTEE OF THE BOARD, AND OTHER RELIEF IN CONNECTION WITH THE HEALTHSOUTH CORP. ACCOUNTING FRAUD
On June 22, 2005, the Honorable Inge Prytz Johnson, United States District Judge for the Northern District of Alabama, entered a final judgment against HealthSouth Corporation, enjoining it from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. The judgment will also require HealthSouth to (i) pay a civil penalty of $100 million, with $12.5 million payable by October 15, 2005, and additional payments of $12.5 million by April 15, 2006, $25 million by October 15, 2006, $25 million by April 15, 2007 and $25 million by October 15, 2007; (ii) disgorge $100; (iii) pay the costs of any distribution of disgorgement and penalties to investors; (iv) retain a consultant to review its corporate governance practices; (v) retain a consultant to review its accounting controls, or as an alternative to an accounting consultant, provide to the Commission's staff communications from HealthSouth's auditors and others regarding its controls and report on its actions to correct deficiencies; (vi) appoint and provide staff for an Inspector General to report to the audit committee of HealthSouth's board of directors; (vii) implement training programs for officers and employees involved in accounting and financial reporting and for senior operations executives at the corporate, division and subsidiary levels, to educate such officers and employees and prevent future violations of the securities laws; and (viii) continue to cooperate with the on-going government investigations. The Commission's complaint, filed on March 19, 2003 and amended April 3, 3003, alleged that shortly after the company became public in 1986, the company began to artificially inflate its earnings to meet Wall Street analysts' expectations and maintain the market price for HealthSouth's stock and that since 1999, HealthSouth systematically overstated its earnings by at least $1.4 billion.
HealthSouth, in consenting to the judgment, neither admitted nor denied the allegations of the complaint. HealthSouth provided substantial cooperation in connection with the investigation of this matter. The penalty amount will be distributed to defrauded investors pursuant to the Fair Funds provision of Sarbanes-Oxley.
See also: L. R. 18,044/March 20, 2003; L.R. 18059/April 1, 2003; L.R. 18060/April 1, 2003; AAER No. 1749/April 1, 2003; L.R. 18070/April 4, 2003; L.R. 18339/September 10, 2003; L.R. No. 18700 and AAER No. 2004/May 10, 2004; L.R. 18843/August 23, 2004; L.R. No. 18904/September 28, 2004