SECURITIES EXCHANGE ACT OF 1934
Release No. 50225 / August 20, 2004

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 2082 / August 20, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11593


In the Matter of

KENNETH K. LIVESAY, CPA,

Respondent.


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ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Kenneth K. Livesay ("Respondent" or "Livesay") pursuant to Rules 102(e)(2) and 102(e)(3)(i) of the Commission's Rules of Practice.1

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Sections III.3 and III.5 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.

III.

On the basis of this Order and Respondent's Offer, the Commission finds that:

1. Livesay, age 43, is and has been a certified public accountant licensed to practice in the State of Alabama. He served as assistant controller of HealthSouth Corporation ("HealthSouth") from 1989 until November 1999.

2. HealthSouth was, at all relevant times, a Delaware corporation with its principal place of business in Birmingham, Alabama. HealthSouth was in the business of, among other things, providing outpatient diagnosis and surgery. At all relevant times, HealthSouth's common stock was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the New York Stock Exchange.

3. On April 3, 2003, the Commission filed a complaint against Livesay in SEC v. Kenneth K. Livesay et al., (Civil Action No. CV-03-S-0758-S). On August 19, 2004, the court entered an order permanently enjoining Livesay, by consent, from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.

4. The Commission's complaint alleged, among other things, that Livesay, at the direction of senior officers of HealthSouth, engaged in a fraudulent scheme which resulted in HealthSouth filing materially false and misleading financial statements in the company's annual reports on Forms 10-K and periodic reports on Forms 10-Q from 1999 through 2002. Among other things, the complaint alleged that Livesay directed other HealthSouth employees to record fictitious assets on the company's books which matched generally fraudulent overstatements of income. The complaint alleged that the fraudulent entries were designed to avoid detection by HealthSouth's independent auditors.

5. On June 3, 2004, a judgment of conviction was entered against Livesay in United States v. Livesay, CR-03-C-0182-S, in the United States District Court for the Northern District of Alabama, finding him guilty of one count of conspiracy to commit wire fraud, one count of securities fraud and one count of willfully and knowingly falsifying books and records of HealthSouth.

6. As a result of this conviction, Livesay was sentenced to 60 months probation, with the first six months home detention, to pay a $10,000 fine, to forfeit $750,000 and to pay a $200 assessment.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Livesay's Offer.

Accordingly, it is hereby ORDERED, effective immediately, that:

Livesay is forthwith suspended from appearing or practicing before the Commission as an accountant.

By the Commission.

Jonathan G. Katz
Secretary

Endnotes