Ernst & Young to Pay $109 Million to Settle Alabama Fraud Suit

Ernst & Young LLP has agreed to pay $109 million to HealthSouth Corp. shareholders who sued the firm for failing to detect an accounting fraud involving more than a dozen executives.

According to papers filed in Birmingham federal court this week, the proposed settlement would create a fund for investors. The New York-based firm did not admit to any wrongdoing.

Rob Riley, a lawyer for the plaintiffs, said the deal is a good one for investors who thought they would never see any return of their investment.

U.S. District Judge Karon Bowdre has scheduled a hearing on whether to give preliminary approval.

Ernest & Young spokesman Charles Perkins said the settlement allows the firm to resolve the litigation.

The proposed settlement would pay certified investors during the fraud period and attorneys. None would go to HealthSouth.

HealthSouth spokeswoman Mary Ann Arico said the company has a separate lawsuit against Ernst & Young that is set for mediation later this year.

Federal prosecutors said the $2.7 billion fraudulent accounting scheme took place from 1996 to 2002. Fifteen former company officials pleaded guilty in the case.