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Hospital Chain Fires CEO After Scandal

Apr 1, 2003 | USA TODAY HealthSouth's board of directors fired the company's chairman and CEO Monday, bringing Richard Scrushy's reign at the rehabilitation hospital chain he founded in 1984 to an inglorious end.

The board had placed Scrushy on administrative leave two weeks ago, when the Securities and Exchange Commission charged him with masterminding a scheme to inflate HealthSouth's earnings by at least $1.4 billion since 1999.

Since then, a criminal investigation headed by Alice Martin, U.S. attorney in Birmingham, Ala., has quickly gathered momentum. Two top executives, Weston Smith and William Owens, have admitted to orchestrating the financial fraud and, on Monday, a third executive pleaded guilty to similar charges.

Emery Harris, 33, an assistant controller at HealthSouth, admitted in federal court that he was part of a group of executives at the company, known as the ''family,'' which met every quarter to plug ''holes'' in the company's earnings statements.

''We're trying to step up to the plate and do the right thing in terms of cooperating both with present management of HealthSouth and the government's efforts,'' said Harris' attorney, Stephen Salter.

Other HealthSouth executives are believed to be cooperating with Martin's probe, which extends to Scrushy and outside parties who did business with HealthSouth. After Harris' plea, Martin said her investigation ''is moving at a rapid pace.''

Scrushy's attorney, William Clark, did not return a call Monday for comment.

The SEC, which has been working closely with the Justice Department in this case, filed charges against Smith, Owens and Harris on Monday, accusing the trio of violating various securities laws for their roles in inflating HealthSouth's earnings.

In other developments at HealthSouth, the company fired longtime auditor Ernst & Young. In a statement issued Monday, Ernst & Young said it was cooperating fully with the Justice Department and SEC investigations of fraud at HealthSouth. The accounting firm noted that no one in the organization has been informed of being investigated in the matter.

HealthSouth is also trying to negotiate some leeway with its creditors. It has already informed institutional lenders that it will not be able to pay off $350 million in bonds due today.

The rehabilitation center company, whose stock has plummeted since the accounting scandal, was dropped from the New York Stock Exchange and trades for pennies. Last year, it traded in the $15 range but had sunk to $3.91 March 19, when the SEC suspended trading in the stock.

Scrushy's firing is certain to bolster the cause of plaintiff's attorneys, who have accused him of inside trading. Last year, Scrushy sold $100 million in stock before jolting investors in August with an announcement that, contrary to previous guidance, the company would announce an unexpected quarterly loss.

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