$100 Million Settlement Against UBS for Its Role in the HealthSouth Accounting Fraud

For years, HealthSouth Corporation reported profits it never earned. Between roughly 1996 and 2002, company executives inflated earnings by approximately $2.7 billion, filing false financial statements with the SEC and misleading investors, creditors, and the public. Fifteen former HealthSouth executives eventually pleaded guilty to fraud-related charges. Former CEO Richard Scrushy was acquitted of criminal fraud but later ordered in civil proceedings to repay hundreds of millions in unjust enrichment.

The scandal raised a harder question beyond the executives themselves: who on Wall Street helped make it possible? Derivative stockholder plaintiffs, represented by Hare Wynn Newell and Newton, filed suit in Jefferson County Circuit Court under the case caption Tucker v. Scrushy, targeting UBS Securities LLC and UBS AG for their alleged role in facilitating or concealing the fraud. The case proceeded as a shareholder derivative action, meaning the firm prosecuted the claims on HealthSouth's behalf.

UBS had obtained a judgment in its favor that was pending on appeal before the U.S. Court of Appeals for the Second Circuit when the parties reached an agreement in principle in October 2008. Rather than continue that appeal, UBS agreed to pay $100 million in cash and release all of its remaining claims against HealthSouth. The Circuit Court of Jefferson County approved the settlement and, in January 2009, awarded derivative plaintiffs' counsel fees and expenses totaling approximately $26.24 million, consisting of $25 million in attorneys' fees plus roughly $1.24 million in unreimbursed expenses, paid from the settlement fund.

John W. Haley and Bruce J. McKee of Hare Wynn led the representation of the Tucker plaintiffs throughout the litigation. After deducting litigation costs, HealthSouth was required to pay 25 percent of the net proceeds into the federal securities litigation fund for the benefit of stockholders. The remaining proceeds reduced HealthSouth's long-term debt. The settlement did not affect HealthSouth's separate ongoing claims against Scrushy, Ernst and Young, or other defendants.