SEC Sues Two Former HealthSouth Finance Chiefs

The Securities and Exchange Commission has sued two former chief financial officers of HealthSouth Corp., claiming they signed false financial statements as part of a $2.5-billion accounting fraud at the rehabilitation giant.

Michael Martin and Malcolm “Tadd” McVay were named in the suit, filed last week in federal court in Birmingham, Ala. Both men pleaded guilty in May to criminal charges in the case.

Besides the allegations that the men knowingly signed false financial statements, the lawsuit accuses Martin of directing lower-level accounting personnel to make false entries in HealthSouth’s books as part of a scheme to make it appear the company was meeting analysts’ earnings forecasts.

The suit also alleges that Martin sold stock in the Birmingham-based company while the share price was inflated due to the false statements.

The SEC asked the court to issue injunctions requiring the men to pay penalties and to identify and relinquish any money they made because of the scam. The complaint also asks the court to bar the men from serving as officers or directors of publicly held companies.

McVay’s attorney, J. Don Foster, said he had not seen the complaint, filed Sept. 3 and announced by the SEC on Wednesday. Martin’s attorney, Mark Hulkower, reiterated that his client had admitted his role in the fraud and is cooperating with authorities.