SEC Charges HealthSouth Corp. CEO Richard Scrushy With $1.4 Billion Accounting Fraud
FOR IMMEDIATE RELEASE
Trading in HealthSouth Securities Is Suspended; Commission Action Seeks Injunction, Money Penalties, Officer and Director Bar
Washington, D.C., March 19, 2003 -- The Securities and Exchange Commission today charged HealthSouth Corp., the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, and its Chief Executive Officer and Chairman Richard M. Scrushy with a massive accounting fraud. The Commission's 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 assets were overstated by at least $800 million, or approximately 10 percent.
Pursuant to a separate Commission order issued this morning, trading in the securities of HealthSouth was suspended for two business days due to the materially misleading information in the marketplace.
The complaint further alleges that, following the Commission's order last year requiring executive officers of major public companies to certify the accuracy and completeness of their companies' financial statements, Scrushy certified HealthSouth's financial statements when he knew or was reckless in not knowing they were materially false and misleading.
"HealthSouth's fraud represents an appalling betrayal of investors," said Stephen M. Cutler, the SEC's Director of Enforcement. "HealthSouth's standard operating procedure was to manipulate the company's earnings to create the false impression that the company was meeting Wall Street's expectations."
Richard P. Wessel, District Administrator of the SEC's Atlanta District Office, added: "The Commission's action against HealthSouth is another example of the excellent coordination and cooperation that has become the hallmark of efforts by the Commission and the Department of Justice to combat financial fraud. By bringing to bear the expertise of both agencies, we achieve maximum deterrence and greater relief for investors."
The Commission alleges that HealthSouth and Scrushy's actions violated and/or aided and abetted violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws. For these violations, the Commission is seeking a permanent injunction against HealthSouth and Scrushy, civil money penalties and disgorgement of all ill-gotten gains or losses avoided by both defendants, and an order prohibiting Scrushy 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.
For further information contact:
- Richard P. Wessel, District Administrator, Atlanta District Office: (404) 842-7600
- Richard P. Murphy, Assistant District Administrator, Atlanta District Office: (404) 842-7600