NEW YORK (CNN/Money) - HealthSouth Corp. said Thursday it is being investigated by the Securities and Exchange Commission and that it has hired a law firm and appointed a special committee to review the matter.

The company hired the law firm of Fulbright & Jaworski LLP as special counsel to review at least one pending shareholder lawsuit and "other matters." The nation's largest chain of rehabilitation hospitals said it voluntarily offered the SEC its cooperation after the agency notified it of the probe in a letter this week.

HealthSouth Chairman Richard Scrushy, whose own stock trades are under scrutiny, blasted what he called "inaccurate reports" and defended the company in a conference call Thursday after the firm disclosed last month that changes in Medicare billing policy would hurt its earnings.

"The company is in solid financial health and we continue to lead the industry in cost-effective clinical outcomes," Scrushy told investors during the call.

Investors were less certain, and HealthSouth (HRC: down $0.77 to $3.39, Research, Estimates) shares sank about 17 percent after the SEC probe was disclosed.

The SEC's investigation follows revelations earlier this month that Scrushy sold 2.5 million shares back to the company, or 94 percent of his stake, at $10.06 a share just weeks before the firm revealed that the regulatory changes would hurt earnings -- a disclosure that battered its stock.

The July 31 sale was to repay a $25 million company loan. Scrushy also sold 5.3 million shares for about $14 each on May 14, earlier reports said.

Weeks later, on Aug. 27, HealthSouth said that a recent ruling by Medicare, the federal health insurance program for the elderly, might reduce its pretax earnings by $175 million a year. Shares of the stock tumbled 44 percent to $6.71 that day, and another 25 percent the next day.

Scrushy defended his stock sales Thursday, saying that on May 14, he sold options he had held for 10 years that were about to expire. "That was more than three months before we had reason to believe (the changes in Medicare) would have a material impact on the company," he said.

Further, Scrushy said he borrowed money from the firm in 1999 under a shareholder-approved plan that was due in 2006. But he said he has repaid the entire loan, about $4 million, including interest.

Meanwhile, HealthSouth said it has appointed Larry Striplin, one of its directors, and Jon Hanson, a newly appointed independent board member, to serve as the special committee looking into the shareholder suit and the SEC investigation.

HealthSouth announced Hanson's board appointment Thursday. He is chairman of real estate investment firm Hampshire Cos. in Hackensack, N.J., and has served on the boards of Prudential Financial, Bell Atlantic and Hackensack University Medical Center, among others.

Lanny Davis, a Washington attorney representing HealthSouth in a host of shareholder lawsuits, said the SEC probe will likely include an examination of the Aug. 27 disclosures, stock trades by company insiders, including Scrushy, and the relevance of a Justice Department lawsuit filed against the company in May, the Wall Street Journal reported Thursday.

This is not the first time HealthSouth's business conduct has come into question.

Last year, the company agreed to pay $7.9 million to settle a health-care fraud suit by the Justice Department accusing the firm of buying computers from Scrushy's parents without disclosing the relationship, in violation of Medicare regulations, the New York Times reported.

Seven years earlier, Birmingham, Ala.-based HealthSouth sold some of its properties to Capstone Capital, which Scrushy founded. HealthSouth then leased back the properties for $7 million a year, according to the Times. Capstone later was sold.

In 1997, Scrushy and another HealthSouth executive created a private investment fund in which HealthSouth invested and agreed to lend it up to $10 million, the Times reported. The company did not get its cash back, but instead received preferred stock in one of the fund's properties as payment for what it was owed.

SEC documents also show a history of relationships among HealthSouth directors and executives such as joint ownership of a Florida vacation home by longtime director Dr. Phillip Watkins and Scrushy.