Former HealthSouth CEO Indicted

Crime in the Suites
Former HealthSouth CEO Indicted in $2.7 Billion Case of Corporate Fraud

11/04/03

It is a CEO’s dream: to consistently “beat the street.” To impress investors by posting earnings per share that are better than the expectations of Wall Street analysts and experts.

Most corporate executives pursue that dream through hard work and innovation. HealthSouth founder and former CEO Richard Scrushy allegedly took a different route: he directed his senior officers to meet or beat Wall Street predictions by cooking the books.

On November 4, Scrushy surrendered to FBI agents in Birmingham, Alabama as an 85-count indictment against him was being unsealed in federal court.

Among the charges:

• Leading a scheme that inflated the company’s earnings by an estimated $2.7 billion; Covering his tracks with phony financial statements and filings;
• Using stock options, bonuses, and salary payments from the inflated results to pad his own bank account by some $267 million;
• Using that money to buy real estate, aircraft, boats, luxury cars, jewelry, and other items;
• Doling out large compensation packages to fellow conspirators to keep them quiet about the scheme; and
• Deliberately making false public statements about HealthSouth’s growth and profitability.

Scrushy is the latest—and most high ranking—of 16 former executives at HealthSouth charged in the alleged conspiracy; 14 have pled guilty and are cooperating with the government.

The losers in the deal? The thousands of investors of HealthSouth, the nation’s largest provider of outpatient surgery, diagnostic imaging, and rehabilitative healthcare services; its thousands of employees as well as former employees let go in the wake of financial difficulties; and its patients, located in all 50 states as well as in the United Kingdom, Australia, and Canada.

The FBI’s Birmingham Division, the IRS’s Birmingham Division, and the U.S. Postal Inspection Service worked the case. The SEC has also been an important partner in the investigation, and the Corporate Fraud Task Force created by President Bush last July is overseeing the case. The Northern District of Alabama and the Criminal Division of the Department of Justice are handling the prosecution.