The board of HealthSouth Corp., Birmingham, Ala., placed President and CEO Richard Scrushy on administrative leave after federal officials charged him with ordering massive accounting fraud at the rehabilitation giant. CFO William Owens also was placed on administrative leave. The Securities and Exchange Commission alleged that at Scrushy's direction, HealthSouth has overstated earnings by as much as $1.4 billion since 1999 and assets by at least $800 million. After filing its 19-page civil complaint in U.S. District Court in Birmingham, the SEC halted trading of HealthSouth stock for two days. The two major ratings agencies, Moody's Investors Services and Standard & Poor's, downgraded HealthSouth's bonds to Caa1 from Ba3 and to CCC- from BB-, respectively. Trading is scheduled to resume tomorrow.
In a written statement, HealthSouth said the board has elected director Joel Gordon as acting chairman and director Robert May as acting CEO and formed a new executive committee to work with them. Gordon and May pledged full cooperation with the SEC and the U.S. Justice Department investigations. The board also created a "special investigation committee" to begin an internal probe into the SEC's allegations. -- by Michael Romano