Ernst & Young is suing HealthSouth Corp., claiming the medical rehabilitation chain hid a massive accounting fraud from the auditing firm, exposing it to lawsuits and damaging its reputation. The suit, filed March 18 in circuit court in Jefferson County, Ala., said testimony in the ongoing corporate fraud trial of fired HealthSouth Chief Executive Officer Richard Scrushy shows executives at the Birmingham, Ala.-based company faked financial documents to hide the scheme from Ernst & Young. Ernst & Young served as auditor for HealthSouth from 1996 to 2002, the period when prosecutors say earnings were inflated by about $2.7 billion in order for the company to meet Wall Street expectations. "The purpose -- and the effect -- of the company's deception was to conceal the fraud from Ernst & Young and to frustrate the performance of its work," the lawsuit says. Ernst & Young, which asked that the suit go to arbitration, is seeking reimbursement of any litigation costs the auditor must pay in lawsuits related to the HealthSouth fraud, plus unspecified damages for lost business. Andy Brimmer, a HealthSouth spokesman, declined comment on the suit Tuesday. During the Scrushy trial at least two former chief financial officers testified the fraud was concealed from auditors in several ways, including fabricated invoices. -- by the Associated Press
Ernst & Young sues HealthSouth for exposure to suits
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