- The Washington Times - Tuesday, March 25, 2003

WASHINGTON, March 25 (UPI) — The New York Stock Exchange said Tuesday that it would ask federal regulators to delist the stock of HealthSouth Corp., which has been charged by the government with accounting fraud.

The exchange said it made the decision because of ongoing investigations into the company by the Securities and Exchange Commission and the Department of Justice, and because of the company's announcement Monday that it could not stand by its previous financial statements.

The SEC last Wednesday suspended trading in HealthSouth shares and they haven't traded since. The stock closed at $3.91 last Tuesday.

"Since last week, we have known that the NYSE was reviewing the suitability of a continued listing on the exchange due to concern over the nature of the ongoing investigations and uncertainty surrounding the company's financial situation," said Joel Gordon, interim chairman of the board of directors at HealthSouth.

Gordon added: "We have been evaluating efforts to secure an ongoing market for our stock." Some traders have independently begun to make a market for HealthSouth shares on the over-the-counter exchange under the symbol "HLSH," the company said.

HealthSouth closed Tuesday at 11 cents per share on the Pink Sheets over-the-counter exchange, where more than 227 million shares changed hands.

On Wednesday, federal regulators accused HealthSouth and its founder Richard M. Scrushy of accounting fraud, alleging that they have overstated earnings by $1.4 billion since 1999. The Justice Department also announced that former Chief Financial Officer Weston Smith pleaded guilty to fraud charges.

HealthSouth on Monday hired the forensic accounting team at PriceWaterhouseCoopers to review its books and Skadden, Arps, Slate, Meagher and Flom as lead coordinating counsel.

Turnaround specialists Alvarez and Marshal have been hired to stabilize operations and address concerns about liquidity.

HealthSouth was dealt another blow Monday when an independent director resigned weeks after her appointment.

Betsy Atkins, a corporate governance specialist, had been appointed to the board on March 7, shortly before the SEC filed charges against HealthSouth and Scrushy. Scrushy and Chief Financial Officer William Owens were placed on administrative leave last week.

"Operations at the company remain uninterrupted as we continue providing excellent patient care, and work with our independent experts to stabilize the situation and review all capital experiences, and begin to move the company forward," said Robert May, HealthSouth's interim chief executive officer, in a statement released Tuesday.

Meanwhile, Banc of America Securities on Monday said it cut its investment rating for HealthSouth to "sell" from "neutral." In a research note, analyst Gary Taylor said at this point "we believe bankruptcy is a realistic outcome."

HealthSouth is also facing a class action lawsuit that alleges the defendants violated the Securities and Exchange Act of 1934. The complaint, which was filed on Friday in federal district court in Birmingham, Ala., alleges the defendants issued false and misleading statements that artificially inflated the value of HealthSouth stock.

The suit, filed by M. Clay Ragsdale, seeks to recover damages on behalf of investors who purchased HealthSouth shares between Feb. 25, 1998 and March 18, 2003.

A message left Tuesday with Clay Ragsdale wasn't returned. HealthSouth spokesman Ernie Knewitz declined to comment on the lawsuit.

Based in Birmingham, Ala., HealthSouth is the nation's largest provider of outpatient surgery, diagnostic and rehabilitative services. The company operates in approximately 1,700 locations in 50 states, Puerto Rico, the United Kingdom, Canada and Australia.

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