UBS, Ernst settle HealthSouth cases for $250.5 million

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The Swiss bank UBS AG and the accounting firm Ernst & Young LLP have agreed to $250.5 million of settlements to resolve investor lawsuits over a fraud that nearly destroyed the hospital operator HealthSouth Corp.

UBS insurers will pay $117 million to HealthSouth shareholders and $100 million to bondholders, and Ernst & Young will pay $33.5 million to the bondholders, documents filed on Thursday with the federal court in Birmingham, Alabama show.

The settlements require approval by U.S. District Judge Karon Bowdre. UBS and Ernst & Young denied wrongdoing, the court documents show.

Ernst & Young also had agreed in early 2009 to a $109 million settlement with HealthSouth shareholders.

UBS in 2008 separately agreed to pay HealthSouth $100 million to settle a lawsuit filed by shareholders on the company's behalf.

The litigation stemmed from an estimated $2.7 billion accounting fraud at HealthSouth, a Birmingham-based operator of rehabilitation hospitals and surgical centers.

Fifteen former HealthSouth executives have pleaded guilty over a scheme to artificially inflate earnings and the company's share price.

Richard Scrushy, HealthSouth's longtime chief executive, was acquitted on criminal charges in 2005, but an Alabama state judge last June ordered him to pay $2.9 billion in a related civil case.

Scrushy, 57, was convicted in 2006 in a separate bribery case. He is serving his six-year, 10-month term in a Beaumont, Texas federal prison, federal prison records show.

David Bronner, chief executive of the Retirement Systems of Alabama, the lead bondholder plaintiff, in a statement called the bondholder settlements substantial and a great result.

UBS was not immediately available for comment.

Ernst & Young spokesman Charles Perkins said the latest settlement allows the accounting firm to avoid lengthy litigation.

The case is In re: HealthSouth Corp Securities Litigation, U.S. District Court, Northern District of Alabama, No. 03-1500.

(Reporting by Jonathan Stempel; Editing by Will Dunham)

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