Healthsouth Fraud Case Study

Introduction

Richard Scrushy of HealthSouth Medicare could face years in prison, allegedly for changing the account figures and inflating the company’s to make him rich. Richard Scrushy was CEO of HealthSouth, the Fortune 500 healthcare company that he founded in his hometown of Birmingham. The SEC and the Justice Department allege that HealthSouth Company falsely inflated its profits by almost $3.1 billion -to push up the price of its stock. One of his chief financial officers blew the whistle by exposing the fraud on March, 2003. As a result the stock value dropped to just pennies a share, leaving thousands of investors holding the consequences. Scrushy admitted that the profits were inflated, but insisted that he knew nothing about it.

Body

Why do you thing Richard Scrushy was acquitted of all charges related to Health South fraud

.Richard was then charged with various counts of fraud. Then a Verdict after a long of deliberation from the jury cleared Richards 36 criminal charges. The judges suggested that the CFOs who testified against Scrushy lacked credibility. According to the judges, the prosecutors did not present enough evidence to show that Scrushy was guilty beyond reasonable doubt.

This was a very high profile trial and seen as a test case for the recently enacted Sarbanes-Oxley act. This was a response to the Enron, WorldCom and other frauds. It held executives directly personally responsible for what happened at the companies and the accuracy of the documents they signed.

The prosecution were outclassed by a very skilled team of lawyers. They had very little documentary evidence and although the evidence by witnesses seemed overwhelming many of the key witnesses were felons giving evidence in return for...

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...tch and spend a lot of time taking it to the top. He said he loved the company and it was like his fourth child. He had issued electronic cards for reporting frauds if they were detected. When he conducted his meeting with his officials, he would ask them to show their cards every time. He portrayed transparency and there could be no way that he would participate in cooking the accounts books.

Also a former CFO William T. testified that he once wore a recorder in a meeting with Richard. The tape indicated that Richard was a strict CEO who wanted to keep the profits high and prevent any losses. From the recorded tape Richard had warned William and the company about financial consequences in case of alterations. William said Richard never mention the use of illegal strategies and could not also pin point any document that would indicate Richards involvement in fraud.