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HealthSouth Says SEC Probing Company

Aug 19, 2002 | AP

HealthSouth Corp. said Thursday it is being investigated by the Securities and Exchange Commission ( news - web sites) in the wake of recent disclosures that its earnings would be sharply lower than expected and that its founder Richard Scrushy had sold half his stake in the firm a few weeks before the profit warning.

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The earnings announcement sent its share price skidding 44 percent lower on Aug. 27.

The company, which operates rehabilitation hospitals and clinics around the country, did not say in the news release exactly what the SEC was examining but said it is cooperating fully with the investigation.

It also said it had named a new independent member to its board and had appointed a special litigation committee to review matters related to claims against the company.

On Aug. 27, HealthSouth announced it was reducing its earnings estimates by $175 million based on a change Medicare billing policy. The announcement also said Scrushy would be replaced as chief executive by president Bill Owens, but would continue as chairman of HealthSouth and a new surgery center company being spun off by the firm.

Earlier this month, it was disclosed in an SEC filing that Scrushy sold about $25 million worth of stock _half his stake in the company — on July 31.

Lawsuits have been filed against Scrushy and HealthSouth executives that question the timing of the insider stock sale and whether information was kept from shareholders who lost some $2.7 billion in value in the initial price plunge.

At issue in the shareholder lawsuits is whether Scrushy knew how much impact Medicare's policy would have on HealthSouth earnings when he sold his shares.

In its news release Thursday, HealthSouth said it contacted the SEC earlier this week on its own initiative and volunteered to provide "any information that might be helpful to it in evaluating recent events."

It said it was later notified the SEC was conducting an investigation.

"Our board and management team are fully committed to addressing the issues that have been raised in recent days," Scrushy said in the news release.

"We have a strong company in sound financial condition, and we are confident that the results of the steps we have outlined today will demonstrate our commitment to acting in the best interests of our stockholders," he said.

The company said Jon F. Hanson, chairman of The Hampshire Companies, a real estate investment firm in Hackensack, N.J., has agreed to join HealthSouth's board. He has served on the boards of Prudential Financial Inc. and Bell Atlantic/New Jersey, Inc.

The company also announced that HealthSouth director Larry Striplin Jr. and Hanson will serve on the special litigation committee.

HealthSouth has asked Fulbright & Jaworski LLP to conduct a review of issues related to litigation and other matters. Their findings will be presented to the Board and shared with regulatory authorities.

HealthSouth is the nation's largest provider of outpatient surgery, diagnostic imaging and rehabilitation services with about 1,900 locations in all 50 states, Britain, Australia, Puerto Rico and Canada. The company had revenues of some $4.3 billion last year.

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