In 2003 the company HealthSouth, the largest U.S. operator of rehabilitation-hospitals, was under investigation by the Securities and Exchange Commission and the U.S. Justice Department for overstating earnings by $2.5 billion since 1999. In 2003, HealthSouth CEO Richard M. Scrushy directed company employees to falsely report grossly exaggerated company earnings in order to meet stock holder expectations. HealthSouth had been dishonest about its income by inflating it by up to 4700 percent. When it was all said and done between 1996 and 2002 HealthSouth reported 2.74 billion in phony profits according to the government during the same time period Richard Scrushy collected more than $265 million from his salary, his bonus, and his stock sales. Scrushy did not go to prison for reporting phony profits that was reported by HeathSouth instead he was ordered to pay restitution. After being acquitted of all charges in the HealthSouth Scandal, Scrushy was convicted of bribery and mail fraud along with the Governor of Alabama Don Siegelman. Scrushy was convicted for bribing the Governor of Alabama for a seat on a state hospital regulatory board. He was sentenced to seven years. He is scheduled to be released in 2013.

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HealthSouth is the one of the largest providers of inpatient rehabilitative healthcare services in the U.S. HealthSouth is fully

operational in 26 states across the United States and also in Puerto Rico. HealthSouth serves patients in various settings such

as; inpatient rehabilitation hospitals, long-term acute care hospitals, outpatient rehabilitation satellite clinics and home

health agencies. HealthSouth’s hospitals are able to provide an advanced care to patients that are recovering from neurological disorders, orthopedic, cardiac and pulmonary conditions, spinal

cord injury, and amputations.

Richard Scrushy and his wife leaving the courthouse after he was acquitted of all 39 counts

of the HealthSouth Accounting Scandal.

Then on November 4, 2011, Mr. Richard Scrushy the ousted leader of HealthSouth was indicted on charges that he directed a $2.7 billion fraud which designed to inflate the company’s stock prices to fund his super-luxurious lifestyle. Mr. Scrushy had purchased items like a Lamborghini, a 92-foot yacht, a private jet, paintings by Renior as well as Picasso, and a mansion surrounded by water. When you look at his salary in 2002, it included 3 million in salary, 10 million in bonus pay, and 99.3 million in stock sales in one year. He is still married to his wife Leslie Ann Jones. He has nine children and several grandchildren. He was sued and his personal items were auctioned off to pay judgments ordered by the court against him.

HealthSouth Corporation

2009 Net Income 94.8

2010 Net Income 899

HealthSouth Consolidated

2009 Net Income 128.8

2010 Net Income939.8

Current Assets

121.7 97.5 Current Assets

426 406.2

Inventory 0 0 Inventory 0 0

Total Assets 1380.6 1939.3 Total Assets 1681.5 2372.1

Current Liabilities

246 192.3 Current Liabilities

391.2 359.3

Total Liabilities

1967.2 1637 Total Liabilities

2191.7 1986.9

StockholderEquity

-974 -85.2 Stockholder Equity

-897.6 -2.2

Sales 63.9 68 Sales 1911.1 1999.3

Health SouthCorporation

2009 2010 HealthSouth Consolidated

2009 2010

Current Ratio

49.74% 50.70% Current Ratio

108.90% 113.05%

Acid Test 49.47% 50.70% Acid Test 108.9% 113.05%

Debt to Equity

-201.97% -1921.36%

Debt to Equity

-244.17%

-90313.64

Total Asset Turnover

3.85% Total Asset Turnover

94.29%

Return on Common Stock

-17.90% Return on Common Stock

-28.63%

Four months after being acquitted in the HeathSouth scandal Scrushy was indicted on new charges of bribery and mail fraud in connection with former Alabama governor Don Siegelman. Scrushy was accused of donating $500,000 to Seigleman’s campaign in exchange for a seat on a state hospital regulatory board. Both Scrushy and Seigleman were convicted on multiple charges, including bribery, mail fraud, and obstruction of justice. Both men received sentences of close to seven years in federal prison. Scrushy is presently serving his imposed sentence at the Beaumont Federal Correctional Complex in Beaumont, Texas. He is 58 years old and is scheduled to be released from prison on 06-08-2013. He will be 60 years old when he is released from prison. The former Alabama governor Don Siegelman was released early from prison.

Richard Scrushy committed an accounting scandal that would involve lies by directing employees to file false financial information in order to deceive stockholder about earnings. Several of the employees of Healthsouth that followed Scrushy orders to report false earning were convicted or plead guilty so were sentenced to prison. His destructive behavior continued even after bring acquitted on 39 accounting charges. He later bribed the Governor of Alabama and committed mail fraud so he was sentenced to prison. Richard Scrushy was one man that built a mega successful business. Although the business was not destroyed by the founder during his quest for power some of the people had their lives forever altered the decisions he made while an Executive at HealthSouth.

I consider the the HealthSouth case interesting because it involves a negative stock holder equity. The return on common stock for HealthSouth Consolidated was -28.63% and the debt to equity ratio are negative as well. The total asset turnover in 2010 was 94.29% yet the company continues to operate. The Net income in 2010 was 939.8 million.

Richard Scrushy had odd jobs as a teenager, he later went to college to become a Respiratory Therapist. He went to work for Lifemark Corporation. He climbed his way through the ranks. He later decided to start his own company Amcare which is now known as HealthSouth. HealthSouth was a successful company. The company made lots of money. The company made Scrushy a very wealthy man. His story was one from rags to riches. He was married a total of three times and has several children. He became a very influential man in Alabama. He thought he was above the law. Scrushy thought he was untouchable. He never admitted guilt for his part in the HealthSouth Accounting Scandal nor did he serve any prison time for it. He was required to auction off items as ordered by the court to pay restitution. The HealthSouth Accounting Scandal could have been avoided if the person that started the company Richard Scrushy had not directed company employees to falsely report grossly exaggerated company earnings in order to meet stock holder expectations. It is my opinion that he should have reported the correct information. Then the chain of events that followed would not have occurred. If he made the decision to report the correct information then his HealthSouth employees would not have been sentenced to prison and his company could have sustained a loss. HealthSouth remains open while it’s stock is trading at about $24-26 dollars a share.

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