Litigation Release No. 18339 / September 10, 2003
Accounting and Auditing Enforcement Release No. 1853 / September 10, 2003
Securities and Exchange Commission v. Michael Martin and Malcolm E. McVay, United States District Court for the Northern District of Alabama, Civil Action No. CV-03-AR-2424-S
SEC Sues Former Chief Financial Officers of HealthSouth Corporation
On September 3, 2003, the Securities and Exchange Commission filed a complaint against two former Chief Financial Officers ("CFOs") of HealthSouth Corporation, Michael Martin and Malcolm McVay. HealthSouth was the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, owning approximately 1,800 different facilities throughout the United States and abroad.
The complaint alleges that Martin and McVay participated in the massive accounting fraud at HealthSouth by signing reports filed with the Commission that they knew contained materially false financial statements. The complaint further alleges that, while CFO, Martin directed lower level accounting personnel to make false entries to HealthSouth's accounting books and records so that HealthSouth's quarterly and annual earnings would meet or exceed Wall Street expectations. The complaint further alleges that Martin sold HealthSouth stock while knowing that the share price was inflated artificially due to the materially false financial statements.
The complaint alleges that Martin violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted HealthSouth's violations of 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. The complaint alleges that McVay violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and aided and abetted HealthSouth's violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 thereunder.
The complaint asks the Court to issue permanent injunctions and to order disgorgement, prejudgment interest thereon and civil penalties against each defendant. The Commission also seeks orders barring Martin and McVay from serving as officers and directors of publicly-held companies in the future.