Several separate lawsuits filed by private parties and the United States Securities and Exchange Commission (“SEC”) claim that HealthSouth Corporation (“HealthSouth”) and others provided investors with false and misleading information that artificially inflated the value of HealthSouth securities, in violation of federal securities laws. Some of these lawsuits have been filed as class actions against HealthSouth and other individuals, asking for money damages on behalf of certain purchasers of HealthSouth securities.

The class action lawsuits were consolidated into two cases in the United States District Court for the Northern District of Alabama, Southern Division.  The name of the consolidated lawsuits are In re HealthSouth Stockholder Litigation, Master File No. CV-03-BE-1501-S and In re HealthSouth Bondholder Litigation, Master File No. CV-03-BE-1502-S.  These consolidated lawsuits are called the “class actions.”  

Another lawsuit against HealthSouth was filed in the same Court by the United States Securities and Exchange Commission (“SEC”).  The name of that lawsuit is Securities and Exchange Commission v HealthSouth Corporation and Richard M. Scrushy, Civil Action No. CV-03-J-0615-S (the “SEC case”). 

You can read additional information at the Case Documents link of this website.

HealthSouth negotiated two separate settlements in order to resolve these claims: one with the SEC (the “SEC Settlement”) and one with the Stockholder and Bondholder Classes (the “class actions settlement”). To settle the SEC claim, HealthSouth paid $100 million to be distributed among certain investors. In addition, to settle the class actions, HealthSouth negotiated a settlement which was valued at the time it was reached at approximately $445 million (in cash and securities). Due to subsequent fluctuations in HealthSouth’s stock price, the settlement’s value may increase or decrease by the time it is distributed. Under the terms of the settlement, HealthSouth paid $230 million in cash and will issue, after adjustment for HealthSouth’s one-for-five reverse stock split, 5,023,732 shares of HealthSouth common stock and 8,151,265 warrants.

The SEC Plan of Allocation was approved by the Court on April 23, 2007. Payments from the SEC Settlement fund are scheduled to be made in spring of 2009, after SEC and Court approval of the distribution.

On January 11, 2007, the Court approved the class actions settlement. On February 11, 2008, the Court approved a proposed Plan of Allocation for distributing the class actions settlement funds and the proposal for award of attorneys’ fees. A Court hearing was held on January 29, 2009 for an appeal that was filed by a class member objecting to certain aspects of the class actions settlement and the Plan of Allocation. Until the Court rules on the matter, which could take several months, the approval of the class actions settlement is not final and distribution for the class actions settlement cannot take place.

Claim Forms were mailed on November 1, 2007. The postmark deadline for filing claims was February 28, 2008.

Francis E. McGovern is the Court-Appointed Distribution Fund Administrator. A court appointed third-party Claims Administrator, Rust Consulting, is processing claims, and will issue payments and other benefits.