SEC Sees 'Betrayal' at HealthSouth
HealthSouth's stock, which last closed at $3.91 on Tuesday, is down 75% from its prescandal high. On Wednesday analysts were still attempting to digest the SEC's findings.
"The world was already aware of the SEC investigation, the [Justice Department] investigation and the shareholder lawsuits," said Jefferies analyst Frank Morgan, who rated HealthSouth a hold ahead of Wednesday's news. "Now, the fun begins with all the gory details. ... There's a lot more information to be disseminated."Friends and Family
Already, the SEC's charges are clearly severe. According to the agency, Scrushy has long instructed the company's senior officers and accounting personnel to materially inflate earnings so the company could hit Wall Street targets. By 1997, the agency says, the company's accountants routinely convened so-called "family meetings" to fix HealthSouth's earnings. The SEC says HealthSouth's accountants would generally follow through by increasing a revenue account and/or decreasing expenses to hike earnings. They would then cover their tracks, the agency says, by correspondingly increasing assets or decreasing liabilities under the established matching rules of accounting. As time went on, the SEC says, the fraudulent behavior only escalated. HealthSouth allegedly began to falsify journal entries and invent invoices to hide overstatements from its independent auditors. Between 1999 and 2002, the SEC says, HealthSouth's practices resulted in a $1.4 billion overstatement in earnings and an $800 million overstatement in total assets.- Loading Comments...
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