5 HealthSouth Officers Plead Guilty to Fraud

Five HealthSouth Corp. officers pleaded guilty to conspiring to inflate company earnings by as much as $2.5 billion, an alleged fraud almost twice the size previously estimated by U.S. authorities.

Separately, the Securities and Exchange Commission, which had accused fired Chief Executive Richard Scrushy and Birmingham, Ala.-based HealthSouth of inflating earnings by at least $1.4 billion, charged him with insider trading. The SEC said it would seek up to $743 million in penalties if it proves the new charges.

The five executives were Kenneth Livesay, chief information officer; Rebecca Kay Morgan, group vice president, accounting; Cathy Edwards, vice president, asset management; Angela Ayers, vice president, finance and accounting; and Virginia Valentine, assistant vice president, finance and accounting. They pleaded guilty to conspiracy to commit wire fraud, securities fraud and filing false records.

Additionally, the company cut 20% of its headquarters staff, or 165 people.