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U.S. Securities and Exchange Commission

United States Securities and Exchange Commission
Washington, D.C.

Litigation Release No. 18060 / April 1, 2003
Accounting and Auditing Enforcement Release No. 1749 / April 1, 2003

Securities and Exchange Commission v. Emery Harris, Civil Action No. CV-03-AR-0715-S

SEC Sues Emery Harris in Connection with the Healthsouth Corp. Accounting Fraud

Commission Action Seeks Injunctions, Money Penalties, Officer and Director Bar

The Securities and Exchange Commission today filed a complaint charging Emery Harris with violating and/or aiding and abetting violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws. Harris held various positions in HealthSouth's accounting department from 1992 through 2003. He was a Group Vice President, Accounting and Assistant Controller from March 2000 to March 2003.

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 Harris, charges that, acting at the direction of Scrushy and in furtherance of the above scheme, he 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 Harris 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. 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 Harris 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)



Modified: 04/01/2003