- The Washington Times - Thursday, March 20, 2003

BIRMINGHAM, Ala. (AP) The government charged rehabilitation giant HealthSouth Corp. and Chairman and Chief Executive Officer Richard Scrushy with civil accounting fraud yesterday, accusing the company of overstating earnings by at least $1.4 billion since 1999.
The Securities and Exchange Commission, which filed the charges in federal court in Birmingham, suspended trading in the company for two days.
Meanwhile, the Justice Department said a former executive at HealthSouth would plead guilty to criminal fraud charges.
The Birmingham-based company inflated its results at Mr. Scrushy's insistence to make it appear it was meeting or exceeding Wall Street expectations, the commission said.
The company's assets were overstated by at least $800 million or about 10 percent by the third quarter of last year, the SEC said.
"HealthSouth's standard operating procedure was to manipulate the company's earnings to create the false impression that the company was meeting Wall Street's expectation," said Stephen M. Cutler, SEC enforcement director.
HealthSouth spokeswoman Kristi Gilmore said the company had no immediate response to the charges. It has denied wrongdoing in the past.
The 19-page SEC complaint said HealthSouth had been overstating earnings at Mr. Scrushy's instruction since it went public in 1986, two years after he founded the company.
The Justice Department said the company's former chief financial officer, Weston Smith, has agreed to plead guilty to securities fraud, conspiracy and wire fraud charges, as well as false certification of financial records, which were designed to inflate the company's revenues and earnings by hundreds of millions of dollars.
Mr. Smith, 42, has agreed to cooperate with the federal government's investigation, the Justice Department statement said.
HealthSouth is the nation's largest provider of outpatient surgery, diagnostic imaging and rehabilitation services.
The charges came a day after FBI agents served search warrants and interviewed workers at HealthSouth headquarters, and were given access to financial records and other materials.
Two agents turned visitors away at the gate Tuesday as other agents worked inside the building. Its stock finished at $3.91 a share Tuesday on the New York Stock Exchange.
In February, the FBI served the company with subpoenas and questioned employees in connection with share sales by executives and board members.
The sales were made before the company said in August that profits would fall because of reduced payments from Medicare. Mr. Scrushy had sold half his stake in the firm about $25 million worth of stock a few weeks before.

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