is a CEO’s dream: to consistently “beat the street.” To
impress investors by posting earnings per share that are
better than the expectations of Wall Street analysts and
Most corporate executives pursue that dream through hard
work and innovation. HealthSouth founder and former CEO Richard
Scrushy allegedly took a different route: he directed his
senior officers to meet or beat Wall Street predictions by
cooking the books.
On November 4, Scrushy surrendered to FBI Agents in Birmingham,
Alabama, as an 85-count indictment against him was being
unsealed in federal court.
Among the charges:
Leading a scheme
that inflated the company’s earnings
by an estimated $2.7 billion;
Covering his tracks with phony financial statements and filings;
Using stock options, bonuses, and salary payments from the
inflated results to pad his own bank account by
some $267 million;
Using that money to buy real estate, aircraft, boats, luxury
cars, jewelry, and other items;
Doling out large compensation packages to fellow conspirators
to keep them quiet about the scheme; and
false public statements about HealthSouth’s
growth and profitability.
Scrushy is the latest – and most high ranking – of
16 former executives at HealthSouth charged in the alleged
conspiracy; 14 have pled guilty and are cooperating with
The losers in the deal? The
thousands of investors of HealthSouth, the nation’s
largest provider of outpatient surgery, diagnostic imaging,
and rehabilitative healthcare services;
its thousands of employees as well as former employees let
go in the wake of financial difficulties; and its patients,
located in all 50 states as well as in the United Kingdom,
Australia, and Canada.
Who is working the case? The
FBI’s Birmingham Field
Office, the IRS’s Birmingham Division, and the U.S.
Postal Inspection Service. The SEC has also been an important
partner in the investigation, and the Corporate Fraud Task
Force created by President Bush last July is overseeing the
case. The Northern District of Alabama and the Criminal Division
of the Department of Justice are handling the prosecution.
A press conference was held on November 4 at the Department
of Justice in Washington, D.C. Speakers included Christopher
Wray, Assistant U.S. Attorney General; Grant Ashley, Assistant
Director, Criminal Division, FBI; Mark Everson, IRS Commissioner;
and Alice Martin, U.S. Attorney for the Northern District