HealthSouth Probe Finds Up to $4.6 Bln in Past Fraud (Update4)
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Jan. 20 (Bloomberg) -- HealthSouth Corp. uncovered as much as $4.6 billion in fraudulent accounting over the past decade, or almost $2 billion more than U.S. prosecutors accused company founder Richard Scrushy of inflating, said interim Chief Financial Officer Guy Sansone.
HealthSouth, the largest U.S. operator of rehabilitation hospitals, uncovered $2.5 billion in fraudulent accounting and as much as $1.6 billion that the company deemed as aggressive, Sansone said in an interview following an investor meeting in New York. The company also improperly accounted for $500 million in acquisition costs, he said.
Scrushy was indicted Nov. 4 for allegedly inflating earnings by $2.7 billion from 1996 to 2003 and laundering money. Fifteen other executives pleaded guilty and are helping prosecutors. Sansone said the company is sharing information from its review with prosecutors.
``The government is aware of this,'' Sansone said.
HealthSouth is trying to avoid bankruptcy after the U.S. Securities and Exchange Commission sued Scrushy and the company last March for fraud. The company also is trying to avoid indictment and has made a series of changes to corporate governance, internal controls and its board of directors.
Shares of the Birmingham, Alabama-based company fell 26 cents to $5.93 as of 4 p.m., New York time, in over-the-counter trading.
Forensic auditors from PricewaterhouseCoopers LLP won't finish their review of company books until the end of the first quarter 2005, company officials said. The company had previously said the audit would be completed sometime this year.
The company reported a loss of $270.1 million on revenue of $4.31 billion in 2002, the last year for which it filed statements.
Years of Fraud
HealthSouth has warned investors not to trust its previous financial statements. The Securities and Exchange Commission said the fraud began shortly after the company became public in 1986, though government prosecutors have filed charges dating only to 1996.
Since the fraud charges were filed, the company has sold most of a fleet of corporate airplanes amassed by Scrushy and ended sponsorship deals with professional sports teams to cut costs. Scrushy received $267 million in compensation from 1996 through 2002, according to an indictment against him unsealed in November.
HealthSouth has tightened ethics rules for its board in an effort to convince prosecutors not to indict the company. Five long-time directors are leaving under a settlement of a shareholder suit.
Board Criticized
U.S. lawmakers criticized the board last year for presiding over a company that had lax internal audit controls and for not questioning Scrushy, who co-founded the company, handpicked most of the directors and used a security system to intimidate subordinates, according to testimony.
Scrushy, a former gas station worker, started HealthSouth in 1984 when most physical rehabilitation was done by local hospitals or small regional businesses. He built it into a nationwide company by gobbling up competitors and buying surgery centers from companies such as HCA Inc., the biggest U.S. hospital chain.
The SEC and Justice Department say Scrushy ordered HealthSouth executives to fake profit when the company's earnings fell short of Wall Street forecasts. That allowed Scrushy to inflate the company's stock price and make millions by selling his shares, the government said.
Last week, shareholders who are suing the company accused bankers at UBS and auditors at Ernst & Young LLP of knowing about the fraud and not stopping it.
Last Updated: January 20, 2004 19:11 EST
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Hopefully, not the end of the world if everything's moving in the right direction now; but, they should've held the meeting in the thatched hut ..... ! :) |
