HealthSouth: SEC investigating amid low earnings announcement; founder selling half stake

Thursday, September 19th 2002, 12:00 am

By: News On 6

BIRMINGHAM, Ala. (AP) _ HealthSouth Corp., the nation's largest provider of outpatient surgery and rehabilitation services, said Thursday it is being investigated by the Securities and Exchange Commission.

The investigation comes amid disclosures that HealthSouth's earnings would be sharply lower than expected and that its founder and chairman, Richard Scrushy, sold half his stake in the company weeks before the profit warning.

The earnings announcement sent HealthSouth's stock price plummeting 44 percent on Aug. 27.

The Birmingham-based company, which operates rehabilitation hospitals and clinics around the country, did not specify which areas the SEC would be looking at but told investors during a conference call Thursday it would cooperate fully.

SEC spokesman John Heine refused to confirm if HealthSouth is being investigated.

Scrushy said during the conference call that the company has strong cash flow and high revenues, and he dismissed pending lawsuits from investors as frivolous.

``We're in a very difficult environment right now,'' he said. ``This is the first time I've experienced an environment where reactions are so severe to even the smallest bit of news.''

HealthSouth also announced 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 in 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 company.

In an SEC filing earlier this month, it was disclosed 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 sale and whether information was kept from shareholders who lost some $2.7 billion in value in the initial price plunge. At issue is whether Scrushy knew how much impact Medicare's policy would have on HealthSouth earnings when he sold his shares.

Scrushy said Thursday the company did not have any indication as to the impact the Medicare policy change would have on earnings until Aug. 15, and that he sold back the stock shares July 31 to pay off a loan from the company in an overall effort to reduce HealthSouth's debt load.

In a news release, HealthSouth said it contacted the SEC earlier this week 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.

HealthSouth has about 1,900 locations in the U.S., Britain, Australia, Puerto Rico and Canada. It had revenues of some $4.3 billion last year.