Allegations of financial trickery against rehabilitation and surgery center operator HealthSouth Corp. widened Thursday when federal officials charged former CEO Richard Scrushy with insider trading and said the Birmingham, Ala., company overstated earnings by at least $1.1 billion more than earlier discussed.
The new charges are in addition to the previously reported guilty pleas that five midlevel HealthSouth executives entered Thursday.
In court filings connected to the guilty pleas, Birmingham-based U.S. Attorney Alice Martin alleges that HealthSouth falsely padded its income by $440 million in 1997 and by $635 million in 1998. This is in addition to a claim made March 19 that the company had overstated earnings by at least $1.4 billion since 1999, bringing the total amount to more than $2.5 billion.
Federal officials also say that HealthSouth has artificially inflated the value of its assets by $800 million since 1999.
The earnings gap likely will go higher, according to Richard Murphy, spokesperson for the Securities and Exchange Commission's regional office in Atlanta, which has filed four civil suits against HealthSouth in the past two weeks. He says the SEC continues to investigate possible accounting fraud back to HealthSouth?s founding in 1986.
"We only quantified the scheme back to 1999" prior to Thursday, Murphy explains.
Also on Thursday, the SEC added charges of insider trading against Scrushy, the company founder who was fired Monday.
"We amended the (original) complaint to specifically allege that Mr. Scrushy engaged in insider trading," Murphy says.
The March 19 suit against HealthSouth and Scrushy says the former CEO dumped company stock under dubious circumstances.
The SEC already has charged two former HealthSouth CFOs, William Owens and Weston Smith, with insider trading. Both Owens and Smith have pleaded guilty to securities fraud, as has Emery Harris, former HealthSouth group vice president for accounting and assistant controller.
Scrushy has denied all charges against him.
According to Murphy, Scrushy is scheduled to appear before a federal judge in Birmingham on Wednesday for a hearing on whether the court should continue a freeze on his personal assets imposed last month.