Healthsouth Memo

Topics: Fraud, U.S. Securities and Exchange Commission, Accounting scandals Pages: 4 (1333 words) Published: February 27, 2013
Memorandum
Date: 2/18/13
Re: HealthSouth Accounting Scandal

HealthSouth Corp., one of the nation’s largest healthcare services providers in the United States was involved in one of the largest accounting scandals in United States history. HealthSouth Corp and its officials overstated earnings in order to meet Wall Street earnings expectations. This memorandum will describe who was involved, how the operation was carried out, as well as a timeline documenting the resulting damages of the scandal.

On March 19th 2003, the Securities and Exchange Commission filed civil fraud charges against HealthSouth and CEO and Chairman Richard Scrushy of “allegedly duping investors into believing the company had met earnings targets” (washintonpost.com staff, 2004). The SEC’s complaint “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” (sec.gov, March 19th 2003). Leading officials at the healthcare giant became entangled in the scandal as well as auditors at the time of the scandal, Ernst & Young and investment bankers, UBS (Freudenheim, 2004).

At Scrushy’s instruction, the company began to artificially inflate its earnings to maintain the market price of company stock. “Between 1999 and the second quarter of 2002, HRC intentionally overstated its earnings, identified as "Income Before Income Taxes And Minority Interests," by at least $1.4 billion in reports filed with the Commission. HRC also overstated earnings, identified as "Income Before Income Taxes And Minority Interests," in the quarterly reports on Form 10-Q filed with the Commission during these years” (sec.gov, March 20th 2003). Senior officers of...

References: Birmingham Business Journal Staff. (2012, December 19). Arbitration Panel Dismisses HealthSouth’s Claims Against Ernst & Young. Bizjournals.com. Retrieved February 16, 2013 from http://www.bizjournals.com/birmingham/news/2012/12/19/arbitration-panel-dismisses.html.
Davidson, V & Beasley, D. (2009, June 18). HealthSouth’s Scrushy Liable in $2.88 Billion Fraud (Update 3). Bloomberg.com. Retrieved February 16, 2013 from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a89tFKR4OevM.
Freudenheim, M. (2004, January 21). HealthSouth Audit Finds as Much as $4.6 Billion in Fraud. Nytimes.com. Retrieved February 16, 2013, from http://www.nytimes.com/2004/01/21/business/healthsouth-audit-finds-as-much-as-4.6-billion-in-fraud.html.
Romero, S & Whitmire, K. (2005, June 29). Corporate Conduct: The Overview; Former Chief of HealthSouth Acquitted in $2.7 Billion Fraud. Query.nytimes.com. Retrieved February 16, 2013, from http://query.nytimes.com/gst/fullpage.html?res=9F01E3DB123AF93AA15755C0A9639C8B63.
U.S Securities and Exchange Commission. (2003, March 20). SEC Charges HealthSouth Corp., CEO Richard Scrushy With $1.4 Billion Accounting Fraud. Sec.gov. Retrieved February 16, 2013 from http://www.sec.gov/litigation/litreleases/lr18044.htm.
U.S Securities and Exchange Commission. (2003, March 19). SEC Charges HealthSouth Corp. CEO Richard Scrushy With $1.4 Billion in Accounting Fraud. Sec.gov. Retrieved February 16, 2013 from http://www.sec.gov/news/press/2003-34.htm.
Washington.com staff. (2004, September 30). Timeline of Accounting Scandal at HealthSouth. Washingtonpost.com. Retrieved February 16, 2013 from http://www.washingtonpost.com/wp-dyn/articles/A24671-2003Oct14.html.
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