ACCOUNTING, SECURITIES FRAUD, INSIDER TRADING New S.E.C. Charges at HealthSouth

NEW YORK TIMES ^ | 4/4/03

[Liz]

BIRMINGHAM, Ala., April 3 (Bloomberg News) — Five officers of HealthSouth pleaded guilty today to conspiring to inflate company earnings as much as $2.5 billion, as accusations of accounting fraud expanded to include earlier years.

The Securities and Exchange Commission, which had accused the former chief executive, Richard M. Scrushy, and HealthSouth of inflating earnings by at least $1.4 billion, accused him today of insider trading and the five of fraud. The agency said it would seek up to $743 million in penalties, forfeiture of illegal profits and triple damages if it proved the new charges. Mr. Scrushy was fired on Monday by the HealthSouth board.

Those pleading guilty today were: Kenneth Livesay, 42, chief information officer; Rebecca Kay Morgan, 35, group vice president, accounting; Cathy Edwards, 39, vice president, asset management; Angela Ayers, 33, vice president, finance and accounting; and Virginia Valentine, 33, assistant vice president, finance and accounting.

Admissions by the five bolster the testimony of three other HealthSouth officials who have pleaded guilty to fraud in the investigation.

All five executives pleaded guilty to conspiracy to commit wire fraud, securities fraud and filing false records, Alice Martin, a United States attorney, said. The five will cooperate with prosecutors investigating Mr. Scrushy and help HealthSouth, one of the largest American operators of rehabilitation hospitals, with a forensic audit of its books, she said.

The four women joined the conspiracy as early as 1994; Mr. Livesay joined in 1996, the charges said. Mr. Livesay was charged with a separate count of filing false books and records. Ms. Edwards and Ms. Morgan were also charged with wire fraud. The five executives will be required to forfeit any gains from their fraud.

Ms. Ayers and Ms. Valentine admitted making false entries to contractual-allowance accounts. Ms. Morgan falsified cash accounts, and Ms. Edwards falsified asset accounts, according to court papers. Mr. Livesay conspired with senior officers to direct the accounting fraud from 1996 to 1999, the papers said.

The fraud detailed in the new charges extended back earlier than previously asserted by the other three executives, Ms. Martin said. The charges against Mr. Livesay, the former assistant controller, say that HealthSouth overstated pretax income by $635 million in 1998 and $440 million in 1997, according to court papers. This adds $1.1 billion to the S.E.C.'s estimate, Ms. Martin said.

"We expect that additional criminal charges will be filed against finance employees who are currently cooperating" with prosecutors and have not been charged, Ms. Martin said in an interview. "It's moving at warp speed."

HealthSouth has hired lawyers and turnaround specialists to help it avert bankruptcy. The company defaulted this week on $367 million in bond and interest payments. The company said it would dismiss 165 workers to cut costs.

Mr. Scrushy, 50, has hired new lawyers to defend the S.E.C. charges, his current lawyers, J. Mark White and William N. Clark, said in court papers. Neither returned calls for comment. The new lawyers were not identified. A call to Mr. Scrushy was not returned.

[Liz]

Ms. Ayers and Ms. Valentine admitted making false entries to contractual-allowance accounts. Ms. Morgan falsified cash accounts, and Ms. Edwards falsified asset accounts, according to court papers. Mr. Livesay conspired with senior officers to direct the accounting fraud from 1996 to 1999, the papers said.

And nobody figured out what they were doing was illegal?

Darn. I keep forgetting.

Clinton was president and Auntie Janet was then AG. All US law was suspended and/or not enforced.

[kcvl]

[Liz]

Ms. Ayers and Ms. Valentine admitted making false entries to contractual-allowance accounts. Ms. Morgan falsified cash accounts, and Ms. Edwards falsified asset accounts, according to court papers. Mr. Livesay conspired with senior officers to direct the accounting fraud from 1996 to 1999, the papers said.

Now isn't that strange as all getout? Nobody figured out what the ladies were doing was illegal.

But then, I keep "forgetting."

All of this occurred during the Clinton-era presidency. Auntie Janet was Clinton's AG.

Presto-chango. All US laws were suspended and/or not enforced.

[Grampa Dave]

You nailed it. From the time BJ Clintoon took over as the chief criminal of the DNC and our country, there was no controlling legal authority.

[Mudboy Slim]

Good news...walkin' down the KorruptKlintonKlanners one by one...NEXT, Gary Winnick of Global Crossing!!

John Ashcroft...Git Outta the Way!!

FReegards...MUD

[Liz]

I can just picture Auntie Janet roaming the Justice Dept mumbling, "Laws? What laws?"

It was said she showed up at meetings with the highest JD officals carrying a yellow legal pad.

Guess she wanted to jot it down if something "important" was said.

What a lamebrain.

[ampat]

This isn't the last we'll hear of this. Most companies are getting off the hook. Ever read about companies restating their earnings from 1 to 3 years in the past. How about routine company layoffs. So many companies are guilty of bad practices, that there isn't enough manpower to handle the investigations. This will continue for a while. It certainly isn't helping, and is detracting from any chance of recovery.

[ampat]

This isn't the last we'll hear of this. Most companies are getting off the hook. Ever read about companies restating their earnings from 1 to 3 years in the past. How about routine company layoffs. So many companies are guilty of bad practices, that there isn't enough manpower to handle the investigations. This will continue for a while. It certainly isn't helping, and is detracting from any chance of recovery.

[Conspiracy Guy]

"All of this occurred during the Clinton-era presidency. Auntie Janet was Clinton's AG. Presto-chango. All US laws were suspended and/or not enforced."

If beneficial to the Clintoon cause the above is true. In many other case the Jamit Rhino Gestapo went a little wild.

[Southack]

The real crime is that so far none of the Feds have gone after the accounting firm that signed off on all of those corporate books and SEC filings for all of those years: Ernst and Young.

Sure, they can hammer some white collar women for fraud, but heaven forbid that we have another accounting firm scandal...

< /DISGUST >

I mean, *why* have auditors if they aren't doing any real auditing?! Why file all of those forms with the SEC in the first place, if they don't mean anything?

[Southack]

The Alabama papers are all claiming that Scrushy donated money solely to Republicans. A quick look below reveals that Repubs were in the tiny minority of his donations, however...

SCRUSHY, LESLIE BIRMINGHAM, AL 35243	HOUSEWIFE	10/23/2002	$1,000	Cleland, Max
SCRUSHY, LESLIE MRS BIRMINGHAM, AL 35242		9/22/2002	$1,000	Johnson, Nancy L
SCRUSHY, RICHARD BIRMINGHAM, AL 35243	HEALTH OUTH CORP	7/22/1999	$2,000	Congressional Majority Cmte
SCRUSHY, RICHARD BIRMINGHAM, AL 35243	HEALTHSOUTH CORP	3/20/2000	$1,000	Aderholt, Robert
SCRUSHY, RICHARD BIRMINGHAM, AL 35243	HEALTHSOUTH REHABILITATION COR	10/23/2002	$1,000	Cleland, Max
SCRUSHY, RICHARD BIRMINGHAM, AL 35243		8/11/2000	-$1,000	Ensign, John
SCRUSHY, RICHARD BIRMINGHAM, AL 35243		8/11/2000	$1,000	Ensign, John
SCRUSHY, RICHARD BIRMINGHAM, AL 35243		6/14/2000	$2,000	Ensign, John
SCRUSHY, RICHARD BIRMINGHAM, AL 35243	HEALTH SOUTH	4/27/1999	$1,000	Harkin, Tom
SCRUSHY, RICHARD BIRMINGHAM, AL 35243	HEALTH SOUTH	4/27/1999	$1,000	Harkin, Tom
SCRUSHY, RICHARD M BIRMINGHAM, AL 35243	HEALTH SOUTH	2/2/1999	$2,000	American Renewal PAC
SCRUSHY, RICHARD M BIRMINGHAM, AL 35243		11/30/1999	-$1,000	Hatch, Orrin G
SCRUSHY, RICHARD MR BIRMINGHAM, AL 35242		9/22/2002	$1,000	Johnson, Nancy L

[BOBTHENAILER]

All of this occurred during the Clinton-era presidency. Auntie Janet was Clinton's AG.

from the same Justice Department that couldn't figure a legal justification to extract bin Laden from Somalia on a siver platter.

I don't suppose any enterprising reporter has checked these perps for DNC/Clinton contributions during the period in question?

[BOBTHENAILER]

I don't suppose any enterprising reporter has checked these perps for DNC/Clinton contributions during the period in question?

I was writing the above question while you were doing wonderful, typical FReeper work. Good job for a partial answer to my post below yours.

[Landru]

"I don't suppose any enterprising reporter has checked these perps for DNC/Clinton contributions during the period in question?"

Whaaaaaat??

~eh, April Fools Day was Tuesday.

...you're late. {g}

[BOBTHENAILER]

~eh, April Fools Day was Tuesday. ...you're late. {g}

LOL. Late...story of my life

[Mudboy Slim]

"The Alabama papers are all claiming that Scrushy donated money solely to Republicans. A quick look below reveals that Repubs were in the tiny minority of his donations, however..."

We can't expect the VastLeftWingMedyuhWhore'd to let the TRUTH git in the way of a good BlamePubbiesFirst story!!

SHEEEESH!!! Good catch...the RATS' LIES are disproved immediately AGAIN...MUD

[Liz]

.....*why* have auditors if they aren't doing any real auditing?! Why file all of
those forms with the SEC in the first place, if they don't mean anything?.......

Precisely.

[Liz]

Nice work. Thanks.

[Liz]

In many other case the Jamit Rhino Gestapo went a little wild.

Oh, sure, if Republicans were involved........no holds barred, eh?.

[Conspiracy Guy]

Republicans, people in Miami or Texas etc..