Judge lowers loss from HealthSouth fraud

Less pain for shareholders could mean lighter sentences for some former employees convicted in the accounting scandal.

By Katherine Vogt, AMNews staff. Dec. 15, 2003.

A federal judge has dealt a blow to prosecutors in the fraud case against some former HealthSouth executives by ruling that it resulted in far less of a loss to investors than the government contended.

U.S. District Judge Inge P. Johnson ruled Nov. 20 that shareholders lost about $66 million due to the fraud at HealthSouth in which the five defendants were involved. "The court finds this estimate of loss, while imperfect, accurately reflects the defendants' ... scope of activity within the conspiracy," she said.

Prosecutors had estimated the loss to be a minimum of $250 million, although they acknowledged that there were different ways to calculate it. U.S. Attorney Alice H. Martin said prosecutors planned to file objections to how Johnson calculated the loss as well as to the judge's finding that these defendants had withdrawn from any alleged conspiracy at HealthSouth in August 2002.

The amount shareholders lost in the fraud is important in the legal case because it could be used to help determine sentencing guidelines.

The five former HealthSouth executives have agreed to plead guilty to various fraud and conspiracy charges and were scheduled to be sentenced by Johnson on Dec. 10. They are among 16 HealthSouth employees charged in the massive fraud scandal at the Birmingham, Ala.-based outpatient services company.