VideoStop us if you've heard this one before.
Late last week, Aaron Beam Jr., HealthSouth Corp.'s first chief financial officer, pleaded guilty to committing bank fraud. In doing so, Beam became the fifth—and likely the last—former HealthSouth CFO to plead guilty to fraud charges. Since going public, the company has had but five finance chiefs.
Beam agreed to enter a guilty plea in the government's ongoing case against former executives at the beleaguered rehabilitation-hospital chain.
The Justice Department alleges that in 1996, Beam and other HealthSouth senior executives collaborated in providing fraudulent financial data to a syndicate of lenders including AmSouth Bank. Allegedly the tarted-up numbers helped HealthSouth secure a $1.25 billion line of credit.
Rick Swagler, an AmSouth spokesman, says the bank's share of the lending relationship (a $55 million line of credit) with HealthSouth "ended some time ago." He also notes that the U.S. Attorney informed AmSouth that she named the bank in the Aaron Beam matter "only to demonstrate that she had jurisdiction." AmSouth is the only bank from the Northern District of Alabama in that deal.
Beam, who was also a HealthSouth co-founder, served as finance chief from 1984 to 1997, when he resigned after a reported falling out with former CEO Richard Scrushy. He is the 11th executive to be charged in the government's criminal investigation into HealthSouth's overstatement of $2.5 billion.
The bank-fraud charge carries a maximum sentence of 30 years in prison and a fine of up to $1 million. No word yet on whether the five former CFOs will get their own wing in the cellblock.
In other HealthSouth news, Neal Webster, a former internal auditor for the company, provided courtroom testimony in U.S. District Court that reportedly suggests HealthSouth's accounting irregularities occurred years before government prosecutors claim they began.
Webster also reportedly testified that Scrushy knew about the alleged bookkeeping tricks.
According to a Reuters account, Webster asserted that Scrushy fired him in 1989 after Webster raised concerns in a meeting with the chief executive about old unpaid accounts receivables that the auditor thought should be written off.
Webster also reportedly testified he was told the receivables could not be written off and was reprimanded by Scrushy: "You don't understand big business," Webster recalled his boss telling him. "We're under pressure to make certain numbers. We have a responsibility to stockholders and shareholders."
On cross-examination, Scrushy's lead attorney, Thomas Sjoblom, reportedly accused Webster of "making it up."
Scrushy is in court trying to get a judge to free up millions of dollars of his assets that were frozen after the Securities and Exchange Commission hit him with civil charges last month. His lawyers continue to argue that Scrushy knew nothing about the alleged accounting scam at HealthSouth.
As CFO.com reported last week, Barbara Patton, manager of HealthSouth's accounts-payable department, also testified that she has doubts that Scrushy knew what was apparently going on in the HealthSouth finance department.
On Friday the SEC also adopted amendments under the Sarbanes-Oxley Act that "prohibit officers and directors of an issuer, and persons acting under the direction of an officer or director, from coercing, manipulating, misleading, or fraudulently influencing the auditor of the issuer's financial statements if that person knew or should have known that such action could render the financial statements materially misleading."
That ought to clarify things.
Riverstone May Face Formal SEC Investigation
Riverstone Networks announced on Friday that the SEC has requested that the company voluntary disclose certain information in connection with its accounting practices. Riverstone management also noted that it has been informed that the commission may open a formal investigation on the same topic.
The company's management intends to cooperate fully with the SEC's request for information. Executives at Riverstone could not be reached for further comment, according to Reuters.
Last week the telecom network equipment maker said it would split the office of chairman and chief executive and that it was searching for a new CEO. Reportedly the change was made to run the business better, and in response to investors' general scrutiny about corporate governance.
With the U.S. telecom-equipment market in a recession, Riverstone has sought in the past several quarters to offset weak demand by pushing hard to gain sales abroad, particularly in Asian markets.
PCAOB Strengthens McDonough's Hand
On Friday the Public Company Accounting Oversight Board voted to give its incoming chairman more power. William McDonough, currently president of the New York Federal Reserve Bank, will now carry the title of chief executive officer when he joins the board. McDonough, who must still pass a background check before assuming the post, will also have greater authority to hire and fire staff.
Reader Comments» Post a comment