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HealthSouth Probe Goes Back to Founding

Apr 7, 2003 | AP Federal authorities investigating allegations of accounting fraud at HealthSouth have gone all the way back to its corporate infancy in the search for clues.

Court documents filed by ousted chief executive and chairman Richard Scrushy show the government has subpoenaed records dating to 1984, the year he founded HealthSouth as a medical rehabilitation company.

The government has sought personal financial information about Scrushy from AmSouth Bank, First Commercial Bank, UBS PaineWebber and Marin Inc., a private corporation he controls, court records show.

Scrushy is trying to block investigators from getting the documents, and Marin is seeking to prevent the government from gaining access to its records.

The documents were filed as a federal judge prepares for a hearing Wednesday on whether Scrushy's personal assets should be frozen for the duration of an investigation into allegations of a massive accounting fraud at Birmingham-based HealthSouth.

Also on Monday, five HealthSouth employees filed a lawsuit against the company, claiming the alleged fraud made company stock a poor investment for their retirement plan. The suit names Scrushy and two other trustees of the employee stock ownership plan. The workers' attorney, Steve Berman, said he expects ``several thousand'' additional plaintiffs if the court grants the case class action status.

Scrushy, through his attorney, has denied any wrongdoing in the scandal, but the defense also has filed papers identifying him as the target of a federal criminal investigation.

Scrushy and HealthSouth are accused in court documents of overstating earnings by some $2.5 billion since 1997 to make it appear the company was meeting Wall Street expectations.

The Securities and Exchange Commission has filed a civil suit against the company and Scrushy, and eight former HealthSouth executives have pleaded guilty to criminal charges of fraud and submitting fake financial statements.

The SEC has said it could seek $785 million or more from Scrushy if he loses the lawsuit. The government contends the company began overstating earnings in 1986, the year it went public.

Federal agents are looking at personal corporations and accounts Scrushy set up at home and possibly abroad to determine whether they received illegal profits or violated tax laws.

U.S. Attorney Alice Martin said HealthSouth is cooperating with investigators.

Suspended from the New York Stock Exchange, HealthSouth stock sold over the counter for about 13 1/2 cents a share Monday. The company's stock traded above $30 a share five years ago.

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