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HealthSouth Fires Chairman

Accounting scandal claims Scrushy; former vice president expected to plead guilty in fraud case

Mar 31, 2003 | CNN/MONEY

HealthSouth Corp. said Monday it had fired CEO and founder Richard Scrushy, while law enforcement officials indicate that a vice president of the largest U.S. rehabilitation hospital chain soon will plead guilty to fraud charges.

The board of Birmingham, Ala.-based HealthSouth said it removed Scrushy from the position of chairman of the board, declared his employment agreement null and void and asked him to resign as a director.

The board also said it plans to replace its auditor, Ernst & Young LLP, with another firm.

Earlier in March, HealthSouth placed Scrushy and chief financial officer William Owens on leave. The SEC has accused the company of inflating reported earnings by $1.4 billion since 1999 and overstating assets by $800 million.

Last week, HealthSouth warned that its prior financial reports were unreliable and said it had retained the forensic auditing team at PricewaterhouseCoopers and turnaround firm Alvarez & Marsal Inc.

According to a Reuters report Sunday, the Federal Bureau of Investigation is looking into Scrushy's business interests. A New York Times report Monday said the FBI is investigating whether Scrushy opened offshore bank accounts last year as a tax shelter.

HealthSouth vice president and assistant controller Emery Harris is expected to plead guilty in a Birmingham, Ala., court to conspiracy to commit wire and securities fraud and to falsifying information to the Securities and Exchange Commission, a law enforcement official told Reuters. He is one of four company finance officers expected to plead guilty on Monday.

In addition, the SEC charged Owens and another CFO, Weston Smith, with possible accounting fraud. The two men were also charged with insider trading.

Former CFO Owens was fired last week after pleading guilty to charges of conspiracy to commit wire and securities fraud and falsifying company accounts. Smith has already pleaded guilty to charges arising from the scandal.

Separately, the Department of Health and Human Services' Office of Inspector General has been investigating whether HealthSouth improperly billed the government's Medicare health insurance program, according to another Reuters report last week.

Adding to the company's woes, one of its lenders, J.P. Morgan Chase & Co., said HealthSouth has defaulted under the terms of its $1.25 billion credit facility, possibly pushing the company toward bankruptcy.


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