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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (2636)	3/26/2003 5:27:50 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 3602

HealthSouth auditors could be next in firing line Wednesday March 26, 3:40 pm ET By Deepa Babington biz.yahoo.com NEW YORK, March 26 (Reuters) - Ernst & Young has been spared accusations of wrongdoing in the unfolding scandal at HealthSouth Corp.(NYSE:HRC - News), but legal experts warn the accounting firm could find it hard to escape legal claims stemming from its role as the company's auditor. In a complaint filed last week, regulators accused HealthSouth of overstating earnings by at least $1.4 billion but stressed the fraud was designed to fool its auditors. HealthSouth executives carefully manipulated estimates that left a limited paper trail and made sure the tampered numbers fell below the minimum threshold that arouses suspicion from auditors, the Securities and Exchange Commission (News - Websites) said. But experts in accountants' liability say Ernst & Young can take little comfort from the defense that it was also a victim of the fraud. "Juries -- they're almost universal on this topic -- ask the question, 'Well if they weren't there to detect fraud, what were they there to do?'" said Mark Cheffers, an accounting consultant who tracks lawsuits against auditors. As a result, accounting firms rarely let lawsuits against them end up in court, choosing instead to settle and fork over millions in the process, Cheffers said. "Courts in general often will take the attitude that an accountant should have detected the fraud," said John Eickemeyer, a lawyer at Vedder, Price, Kaufman & Kammholz who defends accounting firms against liability claims. "Now that may or may not be fair, particularly given that some of these frauds are exceedingly sophisticated and designed with the idea to fool auditors." NOT AWARE OF LAWSUITS Ernst & Young says it isn't aware of any class action lawsuits filed against HealthSouth that have included the accounting firm as a defendant. But that could change. An attorney for Cauley Geller Bowman Coates & Rudman, a law firm that filed a suit in Alabama on behalf of shareholders after the fraud charges came to light, for example, said there is a good chance Ernst & Young will also be named as a defendant in the suit. "In all likelihood, when we amend the complaint, we probably will include the accountants," David Rosenfeld in the New York office of the law firm told Reuters. "They make a lot money in fees, they should do something to earn it." Ernst & Young said it is not aware of any case where the jury has found accountants liable because it felt the auditors should have gone beyond the standards of normal auditing. "If, and that's a very big if, we were to find ourselves engaged in a case that was before a jury, the firm has utter and total confidence in the ability of jurors to, once they are sworn in, differentiate what the realities are," an Ernst & Young spokesman said. "We're just as outraged about what happened at HealthSouth as any juror or investor would be." LONG-TIME FRAUD Particularly troublesome for Ernst & Young is that the alleged accounting fraud at HealthSouth stretched over more than a decade and a half, begging the question of how auditors could be fooled for so long, experts say. Often, warning signs pop up over several years, ranging anywhere from a remark made by an executive leaving a company to a document that seemed out of place, Cheffers said. "The longer the fraud goes on, the greater the number of red flags that, in retrospect, appear," said Cheffers. "Often times when plaintiffs go back they find all these red flags waving around that were missed." Plus, complicating matters is that if HealthSouth slides into bankruptcy, then the bankruptcy trustee would have an easier task filing and sustaining a lawsuit against the auditor, Cheffers said. The central question before shareholders and regulators is whether the auditor should have found the fraud or was reckless in not finding it, said Walter Schuetze, a former chief accountant at the Securities and Exchange Commission. As a general rule, just arguing that they were fooled by management is not a good enough defense for an accounting firm, he said. "Auditors should find fraud," said Schuetze. "If auditors do a proper job, they should find fraud." (Additional Reporting by Jed Seltzer)

To: Glenn Petersen who wrote (2636)	4/14/2003 2:24:44 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 3602

HealthSouth CEO’s tale of the tape msnbc.com FBI recording reveals Richard Scrushy defending accounting tricks HealthSouth officials quickly had a statue of former CEO Richard Scrushy removed after local radio disk jockeys urged listeners to "liberate" the company by toppling the bronze icon. By Mike Huckman CNBC BIRMINGHAM, Ala., April 14 — Birmingham is no Baghdad. And former HealthSouth Corp. CEO Richard Scrushy is no Saddam Hussein. But their statues have met a similar fate. WHEN A COUPLE of local radio DJs urged listeners last week to “liberate HealthSouth” and topple Scrushy’s statue outside a sports medicine institute, the company beat any would-be vandals to it and had the statue taken down immediately. Meanwhile, William Owens is the man Scrushy’s lawyers claim is trying to literally take down their client. Owens is the former chief financial officer of HealthSouth who wore a wire for the FBI to record a conversation he had with Scrushy last month in the executive suite at HealthSouth headquarters. Owens began by telling Scrushy about his wife’s concern over Owens’ signing of what he said she called phony financial statements. “She said, ‘I’ve been reading about Enron and I’ve been reading about WorldCom.’” Owens is heard saying on the tape. “She said, ‘I’m afraid that if you keep this up you may end up in prison.’” A few minutes later, Scrushy responded to that by saying, “I think what your wife is telling you is right.” The FBI handed over a 10-minute portion of the recording to SEC lawyers to use in their case to keep Scrushy’s assets frozen. The attorneys claim under the recently passed Sarbanes-Oxley law, Scrushy is not allowed to spend money he may have gotten by defrauding investors. But on Friday, U.S. District Court Judge Inge Johnson permitted Scrushy to sell as much as $17 million worth of stock in his brokerage accounts to pay his state and federal taxes. “I think you do need to pay your taxes. It’s a requirement. So I think it’s a good result also,” said Scrushy’s attorney Thomas Sjoblom. Sjoblom argued in court that William Owens recorded Scrushy because he wanted to get back at him for demoting him to CFO after a brief stint as CEO when Owens allegedly failed to overthrow Scrushy as chairman. But on the recording Scrushy, talking to Owens, made veiled references to accounting problems at HealthSouth. “I just wish we could just burn it and get it where we want it to be and just buckle down on everything,” Scrushy is heard saying. “You’re a bright guy. You oughta be able to engineer your way out of what you engineered your way into. Does that make sense?” And Scrushy acknowledged that the scandal may be taking a toll on his home life as well. “I mean, hell yeah, I can’t sleep at night. . .I mean, I’m holding my little baby every night and my wife is out of town. I got my little babies, I got my little boy,” he says. “And the reality is, look at how profitable this company is. Do we really want to trash all this?” But later Scrushy tried to rationalize the alleged fraud. “I am convinced that there are 8,000 companies out there right now that got [expletive] on their books?” he asks. “Hell, yeah. Everyone I know are involved in this. Everyone I know. You know that.” The feds are still investigating whether or how much Scrushy was involved in the cooking of HealthSouth’s books. His lawyers say he had nothing to do with it. In the meantime, Scrushy and his wife Leslie — who has taken to reading a bible in the courthouse and occasionally quotes passages to her husband — are lying low, but holding their heads high. “He has a very strong faith,” Sjoblom said.