SEC Sees 'Betrayal' at HealthSouth

It turns out HealthSouth (HRC Quote) is even sicker than most people thought.

According to the Securities and Exchange Commission -- which charged the company with numerous securities violations on Wednesday -- HealthSouth and its top executive intentionally overstated earnings by at least $1.4 billion in the past four years alone. The agency is seeking unspecified penalties from HealthSouth and its founding leader, Richard M. Scrushy, saying that since its birth as a public company more than 16 years ago, HealthSouth has set out to mislead investors about its true financial condition.

The SEC's action comes eight months after CEO Scrushy sold $25 million worth of HealthSouth stock -- or half his stake in the company -- just ahead of an earnings warning that sent the shares plunging. The SEC now maintains that HealthSouth contrived the sudden earnings shortfall to bring Wall Street's expectations down to the company's real earnings potential, sparing uncomfortable officers from certifying false financial statements in the future.

Getting Scrushed

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