In 1996, a scandal started to unfold at a massive US healthcare provider that would eventually lead to senior executives serving jail time.
The corporate accounting scandal went on for six years at HealthSouth between 1996 and 2002.
The founder of HealthSouth, Richard Marin Scrushy, allegedly instructed his employees to report profits that were highly exaggerated to bring in more investors.
The company’s first problem occurred in 2002 when the company allegedly sold shares worth over $75 million.
Right after, it released a loss statement.
By 2003 the US Securities and Exchange Commission (SEC) had discovered the company had been exaggerating its revenues to the limit of $1.4 billion.
Due to this, the company collapsed overnight.
Scrushy was charged for fraud but exonerated of all 36 of fraud counts in June 2005.
However, he was sued for fraud by HealthSouth investors and ordered to repay his company $2.8 billion.
Shortly after the fraud trial, new charges of bribery and mail fraud were brought against him.
He denied those charges too, but was found guilty in 2006 and jailed for six years and 10 months.
He was also fined $150,000, and ordered to pay $267,000 in restitution to the United Way of Alabama.
The company survived the scandal and has made huge efforts to remove any reference to Scrushy and his behavior as it rebuilds it reputation.
Several other officers from the company also served prison sentences for their involvement.
Years later, two of the finance chiefs, Aaron Beam (a co-founder and CFO), and Weston Smith gave some insight into how they became swept up in the scandal.
Beam told CFO he was watching the news in March 2003 when they came out with the alleged scandal.
He said: “At that moment I knew I’d probably be in prison in the not-too-distant future”.
Beam, who worked for Srushy previously, said he had convinced him to take the job at HealthSouth.
He promised him 100,000 shares for the price of $5000.
When their stocks dramatically went up from $6.50 to over $20 in just a few months, Beam was worth millions.
Beam said he and Scrushy got too greedy.
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He said: “It was so much fun being rich and flying all over the world in our private jets”.
According to Beam, Scrushy was especially greedy, making it clear he wanted to be the richest man in Alabama.
By 2003 their fun was over.
The SEC investigated the sale of stocks right before posting the losses were related.
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It was discovered they were not related but that didn’t satisfy the SEC.
The FBI agents were unable to find any major evidence after searching through the company’s headquarters.
As soon as the scandal was discovered, the board of directors of the company held an emergency meeting to discuss the immediate actions.
The first action was to remove Scrushy from his position and it was decided that the company shall make all the payments and avoid bankruptcy.