HealthSouth Fires CEO Amid Probe
HealthSouth Corp. fired Chief Executive and Chairman Richard Scrushy, the central figure in a probe into more than a billion dollars of possible accounting fraud, and a third company executive pleaded guilty to criminal fraud charges Monday.
HealthSouth, the nation’s largest operator of outpatient surgical centers and rehabilitation clinics, said Monday that it informed Scrushy of its decision to remove him in a letter dated Sunday, and said he would not be entitled to severance payments or benefits.
The Birmingham, Ala.-based company also said it would replace Ernst & Young as its auditor as it seeks to restore credibility with investors who dumped HealthSouth stock after the company warned its past financial statements could not be trusted.
Scrushy’s ouster came after two former chief financial officers -- Weston Smith and William Owens -- pleaded guilty to criminal fraud charges and agreed to cooperate with the investigation into the HealthSouth founder. Owens was fired by the board after he pleaded guilty.
Emery Harris, a vice president and assistant controller at HealthSouth, pleaded guilty to similar criminal charges in Birmingham on Monday.
In a separate development, the Securities and Exchange Commission said Monday that it filed insider trading charges against Owens and Smith.
The SEC said it also charged them with “violating and/or aiding and abetting violations of the anti-fraud, reporting, books-and-records and internal controls provisions of the federal securities law.”
Harris pleaded guilty to conspiracy to commit wire and securities fraud, and to charges of falsifying information to the SEC.
The Justice Department said Harris and other senior HealthSouth officers devised a scheme, starting in 1996, to artificially inflate the company’s publicly reported earnings and falsify reports of its financial condition to meet Wall Street earnings expectations.
Scrushy’s lawyers did not return calls seeking comment.
Ernst & Young said it was cooperating with the Justice Department and the SEC, “as they unravel the extensive fraud committed at HealthSouth” and added that Ernst & Young was not under investigation.
