Healthsouth Management Has Overstated Earnings Essay

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in 2003, investigators found that HealthSouth management had overstated earnings by at least $2.7 billion over a 17-year period. Furthermore, before the scheme was exposed, members of senior management had been quietly selling their shares as quickly as they dared and falsely reporting that HealthSouth had billions of dollars in existing assets. In August 2002, the then CEO and Chairman Richard Scrushy sold $75 million worth of his company shares just weeks ahead of HealthSouth announcing that cuts in Medicare reimbursements would reduce its pre-tax profits by $175 million. The company also said it wouldn’t issue earnings guidance for the remainder of 2002. HealthSouth’s share value immediately tumbled from $11.97 to $6.71 (HealthSouth 2002, Appendix 1). With top-tiers selling their shares and the resultant rapid and precipitous drop in the company’s share value, attracted the SEC’s attention to investigate these occurrences. The company’s insiders told SEC that the Medicare payment reduction actually was $20 million at most, and that management was using the additional $155 million in supposed reimbursement cuts to make up for reported earnings that never existed (HealthSouth 2002, Appendix 1) Granting that the detection of the fraud scandal was based on the evidence from HealthSouth Corporation 2002 financial reports,
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