HealthSouth Accounting Scandal
The Story
HealthSouth, a massive healthcare rehabilitation company, systematically overstated its earnings to meet Wall Street expectations. At the direction of CEO Richard Scrushy, senior executives fabricated entries, sometimes using a word meaning 'dirt' to describe fake assets. The fraud was exposed by a whistleblower. Scrushy was acquitted on the accounting charges but later convicted on unrelated bribery charges.
🚩 Red Flags
- Consistently meeting earnings targets exactly
- Aggressive, domineering CEO
- High employee turnover in finance department
- Complex corporate structure with many subsidiaries
- Whistleblower tips to the SEC
⚖️ The Fallout
HealthSouth nearly collapsed, and its stock plummeted. Scrushy was acquitted on 36 counts of fraud but later convicted of bribing the Alabama governor for a seat on a state health board, for which he served 6 years.
📚 Lessons Learned
Another example of 'tonnage fraud'—faking many small transactions that add up to billions. A charismatic CEO can sometimes evade justice for the main crime but be caught on a lesser one.
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