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House Joins Justice, SEC In HealthSouth Scrutiny

Apr 23, 2003 | USA TODAY

The House Energy and Commerce Committee has launched an investigation into the financial fraud at HealthSouth, asking the company and its auditor, Ernst & Young, to provide detailed documentation of their actions surrounding the hospital chain's $2.5 billion overstatement of earnings.

The inquiry, which is likely to result in hearings featuring nervous executives from HealthSouth and Ernst & Young, shows that despite last summer's passage of the Sarbanes-Oxley corporate reform act, the Energy and Commerce Committee still feels it has an important role to play in investigating corporate scandals.

''This is an endless process,'' said committee spokesman Ken Johnson. ''Every time Congress passes a new law, someone's trying to figure out a way around it the next day. That's why it's important for us to investigate.''

The committee has played an aggressive role investigating corporate scandals in the past 15 months. Since January of last year, the committee has dragged a stream of executives from Enron, Arthur Andersen, Qwest, Global Crossing, ImClone and WorldCom into its chambers for questioning.

The Department of Justice and the Securities and Exchange Commission are already well along in their investigations of HealthSouth. Alice Martin, the U.S. attorney in Birmingham, Ala., has secured guilty pleas from eight former HealthSouth executives involved in the fraud and has received promises of guilty pleas from two others.

The committee wants to explore the following areas:

The role of Ernst & Young in the fraud. The committee wants to know the names of key audit partners and get hold of any relevant paperwork between E&Y and HealthSouth.

The auditing firm, along with HealthSouth, has pledged its full cooperation with the probe.

The business relationships that existed between some board members and HealthSouth. Several board members were investors in companies that HealthSouth bought or did business with.

''Some of these financial dealings between board members raise serious questions,'' said investigations subcommittee Chairman James Greenwood, R-Pa. ''I can't wait to hear what these guys say under oath. Whose interests were they looking after, their own or the shareholders'?''

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