Litigation Release No. 18059 / April 1, 2003
Accounting and Auditing Enforcement Release No. 1750 / April 1, 2003
Securities and Exchange Commission v. William T. Owens and Weston L. Smith, Civil Action No. CV-03-C-0720-S
SEC Charges William T. Owens and Weston L. Smith in Connection with the Healthsouth Corp. Accounting Fraud
Commission Action Seeks Injunctions, Money Penalties, Officer and Director Bars
The Securities and Exchange Commission today filed a complaint charging William T. Owens and Weston L. Smith with violating and/or aiding and abetting violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws and Owens with violating the management certification provisions. Since February 2000, Owens has, at different times, served as HealthSouth's Chief Financial Officer, Executive Vice President, President, and Chief Operating Officer. He is a certified public accountant. Smith, who is also a certified public accountant, was HealthSouth's Controller from March 2000 to August 2001 and its Chief Financial Officer from August 2001 to August 2002.
This complaint follows on the heels of the complaint that the Commission filed on March 19, 2003, against HealthSouth Corp., the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, and Richard M. Scrushy, HealthSouth's Chief Executive Officer and Chairman. SEC v. HealthSouth Corp. and Richard M. Scrushy, Civil Action No. CV-03-J-0615-S (N.D. AL). That complaint, filed in federal district court in Birmingham, Ala., alleges that since 1999, at the insistence of Scrushy, HealthSouth systematically overstated its earnings by at least $1.4 billion in order to meet or exceed Wall Street earnings expectations. The false increases in earnings were matched by false increases in HealthSouth's assets. By the third quarter of 2002, HealthSouth's net assets were overstated by at least $800 million, or approximately 10 percent.
The Commission's complaint against Owens and Smith charges that, acting at the direction of Scrushy and in furtherance of the above scheme, they violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The complaint charges that Owens and Smith made or directed other HealthSouth employees to make false accounting entries to inflate reported operating results in order to meet or exceed Wall Street earnings expectations. The complaint also alleges that Owens and Smith engaged in insider trading by selling substantial amounts of HealthSouth stock while they knew that HealthSouth's financial statements grossly misstated the company's earnings and assets. Owens signed a management certification when he knew that the financial statements in the reports he certified were misleading. For these violations, the Commission is seeking permanent injunctions, civil money penalties and disgorgement of all ill-gotten gains or losses avoided by the defendants, and an order prohibiting Owens and Smith from ever serving as an officer or director of a public company.
The Commission thanks the U.S. Attorney's Office for the Northern District of Alabama, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter.
The Commission's investigation is continuing.
See Litigation Release 18044 (March 20, 2003)