Richard Scrushy: Healthsouth Fraud

In 1984 Richard Scrushy founded HealthSouth, Inc., a chain of orthopedic hospitals and outpatient centers. His company grew quickly over the next 12 years achieving a market value of $12 billion. In the 1990s the government began awarding hospitals like HealthSouth with huge healthcare subsidies. Scrushy saw this as an opportunity and he used this source of revenue to finance acquisitions of various competing companies. Scrushy’s acquisition strategy was aggressive in that he began acquiring companies before he even had the money to actually buy them. This created total reliance on the government subsidies to fund these acquisitions. In 1997 the government cut healthcare subsidies to hospitals which had catastrophic effects on HealthSouth as Medicare had made up about 37% of its revenues. This was the turning point for HealthSouth and Richard Scrushy. Faced with pressure from analysts and investors, Scrushy turned to fraud to keep his company afloat. HealthSouth executives took part in numerous fraudulent accounting activities in order to meet the analyst expectations. Scrushy was said to be the ringleader of the entire fraud but many executives and managers took part in …show more content…
Soon after, auditors determined that HealthSouth falsified over $2.7 billion in profits. The fraud was so extensive and widespread that it included fifteen executives of HealthSouth, including five of its CFOs since the 1980s. All fifteen of them plead guilty to purposefully misleading investors or auditors through use of fraudulent accounting. Richard Scrushy was repeatedly identified as the leader of the fraud although he denied all accusations. In 2003 he was indicted by the Department of Justice on 85 counts of conspiracy, money laundering, mail fraud, and securities fraud. In the end, Scrushy was acquitted of all charges in 2005 as the prosecutors could not produce any evidence of his