Federal prosecutors are expected to receive guilty pleas from as many as five HealthSouth Corp. (HRC) finance employees this week in a sign that the fast-moving criminal investigation into massive accounting fraud is reaching deeper inside the company, people close to the situation told The Wall Street Journal.
The employees negotiating plea agreements are among a group in the finance-and-accounting department that, according to prosecutors, was instructed for many years by HealthSouth Chairman and Chief Executive Richard M. Scrushy and some company finance chiefs to inflate financial results. Two men who served as chief financial officers of the Birmingham, Ala., company have pleaded guilty to federal fraud charges and have begun assisting prosecutors in building their criminal case against Mr. Scrushy.
The Securities and Exchange Commission, in a civil complaint this month, accused the company and Mr. Scrushy of overstating profits by $1.4 billion since 1999. That figure could grow, because the government contends that Mr. Scrushy and other executives have been manipulating results since shortly after HealthSouth went public in 1986. HealthSouth provides outpatient surgery and rehabilitation services through nearly 1,700 facilities in the U.S. and overseas.
In a deposition with the SEC earlier this month, Mr. Scrushy denied ever telling employees to change HealthSouth’s financial results. Mr. Scrushy couldn’t be reached for comment.
The U.S. attorney’s office in Birmingham, the Justice Department, the SEC and the Federal Bureau of Investigation have said their inquiries are ongoing. In addition to the central allegations of accounting fraud, the government is looking at a range of issues, including matters such as Medicare billing and Mr. Scrushy’s business dealings outside of HealthSouth.