Attorney General Cox, Treasurer Kleine Announce Settlement with Ernst & Young

Contact: John Sellek or Matt Frendewey 517-373-8060
Agency: Attorney General

June 15, 2009

LANSING- Attorney General Mike Cox and Treasurer Robert Kleine today announced a $109 million national settlement with Ernst & Young resulting from audits it conducted that failed to expose massive fraud taking place when serving as HealthSouth Corporation's auditing firm.  The settlement is one of the largest ever obtained against an outside auditor in a class-action securities fraud case and will benefit the State of Michigan's pension fund and members of the class action against Ernst & Young.

"Retirees and pensioners lost millions of dollars in their hard earned investments as a result of Ernst & Young's actions," said Cox.  "I will continue to stand up for Michigan pensioners and retirees and fight to recover their hard earned funds."

The class action case alleged accounting errors and irregularities against Ernst & Young, including overstating financial statements and failing to conduct audits that were in compliance to generally accepted auditing standards for HealthSouth.  HealthSouth has admitted to overstating its income by more than $2.8 billion, wiping out every dollar of profit it ever reported as a public company.  After disclosure of the wrongdoing, HealthSouth dismissed Ernst & Young and advised investors not to rely on any of Ernst & Young's audited financial statements that HealthSouth issued as a public company.

In 2006, the Attorney General announced a $445 million settlement with HealthSouth as a result of the fraud and losses to pensioners and investors nationwide.  It is alleged that the State of Michigan Retirement Systems lost an estimated $33 million as a result of Ernst & Young and HealthSouth.

Cox has won other settlements for pensioners in Michigan, including a $24.5 million settlement against Tyco in May.  In 2008, Cox negotiated a settlement with Comerica Bank to release more than $1.4 billion in investments that were frozen due to the financial market troubles.  The Attorney General's office is currently pursuing cases against BearSterns and AIG.  The State of Michigan's pension system is one of the largest pension systems in the country, with combined assets of approximately $43.3 billion and representing 574,000 citizens and retirees.