Healthsouth

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INTRODUCTION

HEALTHSOUTH Corporation (HEALTHSOUTH) began its rise in 1984 when Richard Scrushy, Aaron Beam, and other close associates formed the HEALTHSOUTH Empire with venture capital from New Enterprise Associates of Baltimore. In the beginning, Richard Scrushy was the chief executive officer (CFO), Aaron Beam was named the chief financial officer (CFO) and William Owen, an accountant from Ernst and Young, assumed the position of comptroller. HEALTHSOUTH went public in 1986 and began rapidly growing through the acquisition and construction of new rehabilitation hospitals, outpatient clinics, and diagnostic service centers. HEALTHSOUTH was commonly referred to as the “Pacman” of rehabilitation and outpatient surgery due to numerous buyouts and mergers. HEALTHSOUTH and its administration linked personnel with public companies ignoring any and all conflicts of interest.

CASE OVERVIEW

As a public entity, HEALTHSOUTH under Richard Scrushy’s direction was primary focused on economic enrichment. Richard Scrushy demanded that HEALTHSOUTH would always attain analyst expectations by whatever means it took, including fraudulent accounting. Experts are now convinced that the accounting fraud, more then likely, began with the company’s establishment. Minor adjustments made to the accounting records by Aaron Beam were the beginning of the largest fraudulent accounting schemes in history. HEALTHSOUTH used fraudulent financial statements to secure well over $50 million from unsuspecting bankers. Even with marked executive turnover the fraud continued. Any HEALTHSOUTH personnel that questioned the fraud found themselves not longer in the company’s employment. HEALTHSOUTH under Richard Scrushy’s management was perceived by the community as an organization to powerful to go up against. Donations to the community were very common for Richard Scrushy, however once indicted he aligned himself with the African-American religious community in Birmingham in an...
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