HealthSouth: The Scrushy Way Vonetta M. Henderson Northcentral University

Introduction The Enron and Tyco scandals brought visibility to corporate scandals. The magnitude of these scandals resulted in the Sarbanes-Oxley (SOX) Act in 2002. Richard M. Scrushy and HealthSouth Corporation were the first CEO and company to be indicted under the SOX Act. HealthSouth was charged with filing false financial statements with the SEC to hid poor financial conditions from Wall Street. An audit conducted by PricewaterhouseCoopers concluded that HealthSouth overstated its cumulative earnings between $3.8 billion to $4.6 billion (Weld, Bergevin, & Magrath, 2004). Although Scrushy was charged with 85 counts, he pled not-guilty, claiming that he was unaware of the fraudulent activities that had occurred. Scrushy was later exonerated as the investigation into the company found no evidence that Scrushy orchestrated or participated in any financial wrongdoings. Five financial executives and 10 other company officials pled guilty to a variety of charges.
Background
Richard M. Scrushy founded Amcare, Inc. in 1984. The company opened its first facility in Little Rock, Arkansas and one year later opened a facility in Birmingham and changed its name to HealthSouth Rehabilitation Corporation (HRC). In 1986, HRC went public with its initial public offering (IPO) on the NASDAQ stock exchange (HealthSouth Corporation, 2010). In 1988, HRC moved to the New York Stock Exchange and by 1990, the company had over 50 facilities across the United States (HealthSouth Corporation, 2010). HRC expanded rapidly in just a few years after moving to the New York Stock Exchange. In 1993, 45 outpatient rehabilitation facilities and 28 hospitals were acquired from National Medical Enterprise by HRC for approximately $300 million in cash (HealthSouth