HealthSouth is one of the nation's largest healthcare services providers, with locations nationwide. Earnings at HealthSouth were overstated by anywhere from $3.8 Billion to $4.6 Billion over several years. This false information drove inflated market values for the firm, which attracted more capital investment. That capital flowed in from individual investors as well as institutional money. Once the market value was exposed as inflated by fraud, thousands of investors lost money as the price of the stock collapsed.
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Feb 26, 2015 · There were many consequences of the fraud to stock There were many consequences of the fraud to stock investors in HealthSouth Corporation. As a result of the fraud, trading of HealthSouth’s stock was suspended, and HealthSouth’s stock was delisted a week after the FBI’s raid (Barry, 2009). In addition, the price of the stock dropped significantly.
Apr 14, 2017 · The consequences to HealthSouth Investors were devasting starting in 2002 upon the start of the investigation and the removal of CEO Richard Scrushy. (reference chart below) In March 2003, the NYSE stripped HealthSouth of their S&P 500 rating and stock values continued to drop from $19. 55 to $. 60 by the end of the investigation.
May 19, 2020 · HealthSouth got away with such a huge fraud for a long time. Their executives followed the following three basic steps-Company officials compared their financial statements with that of the expectations of the analysts and investors. The employees were instructed to manipulate the account books to bring the desired results.
Nov 22, 2003 · HealthSouth fraud impacts millions. You may have already heard a lot about Mr. Richard Scrushy, the founder and former CEO of HealthSouth Corp. Scrushy was indicted on 85 criminal counts alleging ...
BIRMINGHAM, Ala., May 18 — The Justice Department announced Thursday that HealthSouth, the chain of outpatient rehabilitation hospitals, would pay $3 million and avoid prosecution over a giant accounting fraud discovered at the company three years ago.May 19, 2006
HealthSouth reported excess earnings in its statements for many years. For all those years, excess tax was also paid to the government. Later when the fraud was revealed and the company went into losses, the tax authorities paid back $400 million as tax refund to the company for the period when it overpaid taxes.Feb 6, 2019
HealthSouth was accused by the U.S. Securities and Exchange Commission (SEC) of an accounting scandal where the company's earnings were falsely inflated by $1.4 billion.
On June 18, 2009, Judge Allwin E. Horn ruled that Scrushy was responsible for HealthSouth's fraud, and ordered him to pay $2.87 billion....Richard ScrushySpouse(s)Debbie Cody (197?–197?) Karon Brooks (1978–1996) Leslie Anne Jones (1997–present)7 more rows
HoustonAfter serving about five years of his sentence, Scrushy was released from prison. He now lives in Houston and works as a small-business consultant.May 14, 2020
Former HealthSouth Corp. finance chief Weston Smith, who blew the whistle on the accounting scandal that rocked the company, on Thursday was given 27 months in prison - the stiffest sentence for any executive involved in the fraud.
April Anthony, founder of leading home health care company Encompass Health, is being accused of breaching her employment contract by secretly meeting with employees after leaving the firm earlier this year, resulting in five high-ranking executives joining her new competing venture.Oct 26, 2021
HealthSouth, one of the largest healthcare services of the USA, was accused of a huge corporate accounting scandal, the infamous $2.8 billion accounting scandal which went for years, 1996 to 2002, to be precise. The founder and CEO of the company directed its employees to report highly exaggerated profits for the company to woo more investors.
The first ever violation by HealthSouth came into notice in the year 1998 when it was accused under the Securities Exchange Act for misrepresentation of the financial position of the company and the failure to disclose the negative trends. This was handled by the company until it became major, by the year 2002. Larger problems started accumulating after the company sold $75 million worth shares right before the company posted a huge loss in its financial statements. The SEC accused the company of an accounting fraud by inflating the income/profits of company as high as $1.4 billion, which is more than 10% of the assets of the company. It was found out that the CEO of the company, Richard M Scrushy instructed the senior officials of the company to falsify the earnings of the company in the account books so as to be able to control the control the stocks of the company, to woo new investors and meet the expectations of the current shareholders. Allegedly, it began in the year 1996, which means that this continued for seven years. In some fiscal years, the company even overstated its profits at the rate of 4700% of its real annual profit. Interestingly, based on the inflated income, the company had to pay more amount as corporate taxes than its actual income.
The growth strategy of HealthSouth was based on the presumption that medicare is a no-loss business as the government as well as the individual people will always invest in here. The government provided subsidies and large reimbursements to medicare facilitators. The main scheme of HealthSouth was to aggressively acquire all the competing companies, which will cut the competition as well as pave path for receiving more of the government’s money. The strategy worked impeccably in the initial years so much so that the core business of rehabilitation was expanded and the company ventured into outpatient surgery, medicine and hospital services. However, in 1997, the government largely minimised the reimbursement that was going to hospitals, precisely to the point that the downfall of Medicare started. Approximately 40% of the revenue of Healthsouth was dependent on the same, the revenue hit real hard. The company could not cope with sudden losses. The flaws in its operations began to show. There was a huge loss in the number of patients visiting, yet the sales never declined. The company explained this magical growth occurred due to raising revenues through increased efficiency and cost cutting, but the reason was apparent. The numbers never went low because they didn’t exist, it was all fictitious.
An independent law firm was hired by Healthsource to review the matter, which concluded that the two events were unrelated. This report could not satisfy the SEC. The FBI agents searched the company’s headquarters but could not collect any major evidence. After a trial which ran for 2 years, Scrushy was acquitted of the 36 charges of accounting Fraud which couldn’t be proved against him, one being the violation of Sarbanes-Oxley Act.
He was acquitted of most charges levied against him, but for the accounting fraud which happened in his connivance, he was convicted a jail sentence of five years.
HealthSouth, now renamed as Encompass Health Corporation, is a leading healthcare and rehabilitation company which provides outpatient services in more than 1900 locations in United States, United Kingdom, Australia etc. It was incorporated in Birmingham, Alabama as a Delaware company in 1984 as Amcare, Inc. by Mr. Richard M. Scrushy. He was the founder and the CEO of the company. In the year 1985, the company changed its name to Healthsouth Rehabilitation Corporation. An year later, the company became public by listing of its shares on the NASDAQ Stock Exchange for the first time. The company started expanding at a rapid rate. By the year 1993, it was the largest company in its field with more than 50 centres throughout the USA. In that time, the annual revenue of Healthsouth touched the mark of $1 billion for the first time. Throughout 1990s, the company kept expanding through mergers and acquisitions. In the year 1995, the company changed its name again to ‘Healthsouth Corporation’ to reflect its wholesome services related to healthcare and not only rehabilitation. Healthsouth managed to make agreements with all major insurance companies, major corporations for managed care plans. Big companies which had memorandum of understanding signed with Healthsouth includes Walmart and Goodyear.The company constructed various rehabilitation centres throughout 1990s, and the cost efficient and effective services became the reason of its success. It also made alliances with professional sports clubs and schools for supply of rehabilitation and medicinal services. The company kept on flourishing as it acquired various small and big corporations in their field. Healthsouth made major acquisitions in the 1990s by purchasing National Surgery Centres. With its dominant position in rehabilitative health care, outpatient surgery and diagnostic imaging market, Healthsouth adopted the slogan “The Healthcare Company of the 21 st Century” in order to maintain its standing as the leader in their field.
Richard Scrushy, as has already been documented, was the ringleader. Everyone below him either plead guilty or was convicted and testified against him. The result is that he was convicted and sentenced to prison.
Aaron Beam was the CFO when the fraud at HealthSouth was initiated. The trajectory of his career, by his own admission, was that he went from earning $500,000 per year to scrubbing urinals in prison.
Michael Vines, a bookkeeper with HealthSouth, tried to warn several members of management about how the asset-management division was recording transactions. He was one of three employees overseeing the purchase of equipment. He came to believe that the assets were being fraudulently overstated on the company’s balance sheet.
Madoff Investment Securities, was turned in by his two sons and arrested on Dec. 11, 2008, for running a widespread Ponzi scheme.
During his reign as CEO, Dennis Kozlowski, who was reported as one of the top 25 corporate managers by BusinessWeek, siphoned hordes of money from Tyco, in the form of unapproved loans and fraudulent stock sales.
Adam Hayes is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7 & 63 licenses. He currently researches and teaches at the Hebrew University in Jerusalem.
Barry Minkow, the owner of this business, claimed that this carpet cleaning company of the 1980s would become the "General Motors of carpet cleaning." 1 Minkow appeared to be building a multi-million dollar corporation, but he did so through forgery and theft. He created more than 20,000 phony documents and sales receipts without anybody suspecting anything. 2
Amazingly, the CEO was acquitted of 36 counts of fraud but was later convicted on charges of bribery. Apparently, Scrushy arranged political contributions of $500,000, allowing him to ensure a seat on the hospital regulatory board.
Apparently, the company felt that office pens, pencils, and paper were an investment in the future of the company and , therefore, expensed (or capitalized) the cost of these items over a number of years. 12