Kenneth Livesay, assistant controller, 1989­-1999, CIO, 1999-2003
Directed staff members to commit fraud. "Methods included overbooking reserve accounts...which could later be bled out into revenue, creating fictitious entries in the fixed-asset system...and overstating intangible-assets accounts."

Angela C. Ayers, VP and various accounting positions, 1994-2003

Cathy Edwards, VP and various accounting positions, 1993-2003

Rebecca Kay Morgan, group VP and various accounting positions, 1987-2003

Virginia B. Valentine, assistant VP and various accounting positions, 1995-­2003.

These four pleaded guilty to making false entries into the PP&E, cash, inventory, and goodwill accounts at various times from 1999 to 2002, and creating false documents to support the entries.

A History of Deceit

1984: Richard Scrushy, Aaron Beam, Tony Tanner, Eugene Smith, and John Midkiff establish HealthSouth Corp.

1994: Scrushy becomes CEO.

1996: Fraud begins. (May have started earlier, but government so far can't prove it.)

1997: Merger with Horizon CMS allows HS to shift $300 million of expenses to Horizon's books and wrongly record $400 million in goodwill assets.

1998: Scrushy claims earnings per share will hit $1 despite internal projections of only 78 cents.

Q1 1998: HealthSouth reports $587 million in expenses, versus $700 million actual. (Company devises plan to blame managed care and federal balanced-budget bill.)

Q2 1998: HealthSouth estimates $932 million in revenues versus $888 million actual. Announces $593 million expenses versus $688 million actual. Actual net income: $36 million versus $117 million expected.

Q3 1998: Actual expenses are $743 million versus expected $669 million

1999: Diana Henze voices concern about fraud; HealthSouth lowers earnings estimates at Martin's prompting; 10-K misstates pretax income by $421 million (220 percent).

2000: 10-K misstates pretax income by $365 million (188 percent).

2001: 10-K misstates pretax income by $425 millopm (4,722 percent).

August 2002: HealthSouth announces that new Medicare billing guidance will reduce annual earnings by $175 million (versus $20 million-­30 million actual impact).

Fall 2002: SEC begins civil investigation, sparked by a newspaper article about the August announcement.

Q3 2002: HealthSouth overstates assets (PP&E) by at least $800 million (10 percent).

March 2003: Owens agrees to wear a wire; FBI agents storm Birmingham headquarters.

Sources: SEC complaint; testimony from Martin, Owens, and Neal Seiden; Martin Cohen's testimony before Congress

• « previous
• 1
• 2
• 3
• 4
• 5