Free Essay

Healthsouth Scandal

In: Computers and Technology

Submitted By Prophet
Words 2596
Pages 11

Richard Martin Scrushy was born in 1952 in Selma Alabama. Richard is the son to Gerald and Gerri Scrushy. Gerald was a cash register salesman and Gerri was a registered nurse (Watson, 2005, p. 2). Richard worked until he became successful, wealthy, and powerful. He was able to obtain the American dream of family, security and wealth. In 2003, an accounting scandal threatened to change his career, his wealth, and his freedom. The Securities and Exchange Commission (SEC) filed a civil law suit against HealthSouth Corporation and Richard M. Scrushy. The SEC charged that the company inflated their books by $1.9 billion since 1999 (SEC, 2003). The filing of these charges had a multiple impact on the stakeholders. The ethical dilemmas that caused the rise and fall of Richard M. Scrushy will be reviewed.

Scrushy’s Beginnings Scrushy began his humble beginnings in Alabama. Watson (2003), biography of Scrushy reports he dropped out of high school and worked as a gas station attendant and later a bricklayer. He eventually returned back to school and earned his high school diploma. Later Scrushy enrolled at Jefferson State Community College in Birmingham. He did a year at Jefferson State and a year of clinical training at the University of Alabama at Birmingham (UAB). Scrushy graduated in 1974 as a certified respiratory therapist (Watson, 2003, p. 1).
Once Scrushy graduated with the certification of a respiratory therapist, he began climbing the ladder. His accomplishments were as follows: * 1974 - Taught at University of Alabama Birmingham. * 1979 -1984 Vice President at LifeMark HealthCare Firm. * 1984-2003 Founded HealthSouth in Little Rock Alabama. The company began with the four colleagues from Lifemark and $50,000. Scrushy also became CEO and Chairman of HealthSouth. * 1985- Scrushy moved HealthSouth to Birmingham. * 1986- SouthHealth went Public (Cherry, Brenda & Neering, 2003, p. 76). Dr. Phillips a cardiologist who testified at the congressional hearings stated there was another company, Amcare, in 1983 before HealthSouth. Scrushy proposed that Dr. Phillips merge his practice facility with Amcare to form a Comprehensive Outpatient Rehabilitation Facility (CORF). Dr. Phillips testified, “The unique concept of a CORF was to combine outpatient surgery and rehabilitation facilities into one stand-alone medical complex in order to ease patient burden and expense, and ultimately provide for more successful patient recoveries,” (cited by Jennings, 2012, p. 189). The concept was appealing and cost effective to the physician. He would be used to persuade other medical professionals to buy into the concept. Dr. Phillips testified he felt that this concept was and still is very comprehensive. He did not know of the fraudulent accounting and believes under the new directors the company can continue to succeed.
Executives at HealthSouth

According to Jennings (2012), the workers consider Scrushy as a tyrant and micromanager. He had Monday morning numbers meetings which were referred to as the “Monday morning beatings,” (p. 184). This meeting was an opportunity for Scrushy to flex his authority. He questioned the staff about cellphone bills, hospital performance and tactical issues. He often said to the team of executives, “That was the stupidest thing I ever heard,” (Heylar, Cherry, and Neering, 2003, p. 76).
Heylar, Cherry, and Neering (2003) continue to report, the company’s team motto was “Pulling the Wagon Together.” Scrushy had printed up posters, tee shirts and a sculpture of eight stick figures pulling the wagon. Outside of his office in Birmingham, Scrushy had the replica of the wagon. Aaron Beam, co-founder and CFO felt, “the team was really pulling the wagon for Richard and in the end, he was leading all of us to a sure disaster,” (cited by Heylar, Cherry, Neering, 2003, p. 76).
Beam’s sentiments regarding Richard’s self-centered attitude was shared by many. Scrushy’s extravagant living earned him the name Birmingham’s Donald Trump, or King Richard. Peter Emch, a health-care analyst with Credit Suisse First Boston told Chief Executive (2001), "He's one of the most visible and flamboyant leaders in health care." In Birmingham he had buildings and streets named after him. He built a moment to himself behind the company. During the trail his assets were listed by the SEC as 34 cars, a yacht, captain, maids, homes, helicopters, private jets, vacation homes and other luxury items. King Richard did not appear to be a popular King. Many of his executive’s testimonies painted him as a tyrant. He behaved as a man who did not get what he wanted during his childhood, so he created a lifestyle where he could reward himself at all times. Nevertheless, his executives remained loyal subjects within the company. Why did these executives endure the harsh treatment and engage in fraudulent behavior? The executives maintained their positions and unethical and illegal behavior for the following reasons: * They were in agreement with the cost effective treatment of clinics vs. traditional hospitals. * HealthSouth pay scale was higher than other companies. * Helyar, Cherry and Neering (2003), researched that the staff could get stock, and shares became quite valuable as the company's stock rose, at a 31% annual clip from 1987 to 1997. * The fourth and final reason would be all the star studded athletes coming into the sports-medicine clinic. Michael Jordan, Bo Jackson, Kobe Bryant, Herschel Walker, Roger Clemens, Scottie Pippins, and other athletes would come in for treatment (Jennings, 2012, p.183).
It appears that these executives discarded their own personal ethics to enjoy, money and the privilege of being with famous celebrities. During the litigation and testimony there were only a few individuals that dared to go against the group ethics and maintain their own individual ethics. As cited by Jennings (2012), Denise Henze and Teresa Sanders, both accountants, did not enjoy working for Scrushy and their fiduciary duties did not allow them to falsify documents. Scrushy was not compassionate when he was doubled crossed. William A. Massey Jr., was Scrushy’s personal CFO. According to Heylar and (2003) when Scrushy realized that Massey was having an affair and stealing from him, he became outraged. The mistress’s name was Hope Launius, who worked for Uppseedaisees and was Leslie Scrushy’s close friend (p. 411). Massey, Scrushy and Launius met when the details were revealed. Nevertheless, the thought of being ousted by Scrushy to his wife and co-workers caused Massey to commit suicide on July 30, 2002 in Birmingham. Scrushy tried to file a criminal case against a dead man for embezzlement. Was the King the only one who could behave badly? Apparently the rule was, the king could steal but no one else could mirror his behavior.

Sudden Attack of Morals Salky and Roseman (2005) reported that the chief financial officer of HealthSouth, Weston Smith, had a life changing event in August 2002. Smith had signed several fraudulent documents in the past, but since the Enron scandal and the SOX Act of 2002 he was frightened to sign the second quarter annual financial report, a form called 10-Q. (Taylor, 2005, p. 411). Under the SOX Act, white collar crime penalty came with a possible ten year imprisonment. Therefore, officers who willingly or recklessly certified false statements could face imprisonment. Smith should have followed his initial judgment in the first quarter to resign and not sign the form. However, Scrushy personally spoke with him and convinced him that the company was turning over a new leaf and he would be the new CFO and numbers would not be inflated. Therefore, he signed the document and therefore became liable for his actions (Taylor, 2005, p. 412).
The Stakeholders Stakeholders were affected by the companies’ actions and detrimental policies to falsify the books. Employees, government, shareholders, and patients were directly affected. During the congressional hearings in the House of Representatives, the Honorable James C. Green, Chairman made the following statements.
“Mr. Scrushy stands accused of masterminding a scheme to boost the company's income over a period of 7 years by $2.7 billion. $2.7 billion; that is an incredible amount of money. How many retirees invested their savings with HealthSouth relying on figures that told them the Company was in good financial health? How many young families just starting out decided to invest their hard earned dollars in HealthSouth relying on the public statements of CEO Richard Scrushy? Over a period of 7 years Mr. Scrushy received about $267 million in compensation from HealthSouth, including $53 million in bonuses alone.” Scrushy’s lack of morals and ethics may have caused investors their life savings. As stated above by the Chairman of the House of Representatives, Scrushy deceived innocent people who believed the reports his company had inflated. The reports indicated that the company was a solid investment and doing extremely well. Therefore, individuals placed their monies within the companies. The damage was so great that the stockholders filed a civil lawsuit seeking damages of $2.6 billion from Scrushy.

Scrushy’s Legal Outcome and Punishments In May of 2005, the federal grand jury indicts former Alabama Gov. Siegelman and Scrushy on bribery charges that Scrushy bought a seat on a state health board by arranging $500,000 in donations to Siegelman's 1999 campaign to establish a state lottery. On June 29, 2006 the Federal jury finds Scrushy guilty of bribery, conspiracy and mail fraud.
On June 28, 2005, Scrushy was acquitted in federal trial of fraud and violations of the Sarbanes-Oxley laws. To everyone’s amazement, Scrushy was acquitted of 36 counts of criminal charges regarding the accounting fraud following a jury trial in 2005. His lawyer, Donald Watkins, a black attorney from Birmingham used the media and his race card to speak to the 7 of 12 Black jurors (Hayler, 2005, p. 6). Watkins saved Scrushy with his tactics. The trail was on media every day. Church members would come and sit in the courtroom to show support. Scrushy had joined a black church and had religious television shows. It is disgraceful that such tactics were used to win a case. The black attorney used race and religion to help a client that he knew was guilty. It is his job to give the best defense for his client, but at what cost? After Scrushy's acquittal in 2005, Henderson admitted that Scrushy had given him money for his church and for helping build support for Scrushy in Birmingham's black community before that first trial. Scrushy and his supporters denied the claims (Faulk, 2011).
Scrushy however had other lawsuits and criminal charges pending. Barr (2005) reported Scrushy faced a $2.88 billion lawsuit brought by HealthSouth shareholders for inflating the company's earnings between 1996 and 2003. In the civil trial in Birmingham, Ala., Scrushy vigorously argued that he neither played a role in nor was aware of the financial deception. Scrushy’s lawyer, Watkins indicated that his client was innocent. Watkins felt that his client was not aware of the accounting fraud at HealthSouth, and when it was brought to his attention he could not correct it because he was removed from his position as CEO. It is very hard to believe a CEO would not know what is happening within his accounting department. It was his responsibility to ensure the reporting was accurate. Jefferson County (Ala.) Circuit Court Judge Allwin Horn’s statement validates my assessment. "Scrushy was the CEO of the fraud," Judge Horn’s comments were, "This court finds it inherently incredible that a CEO could fail to know of or discover a fraud of this magnitude over almost seven years," (as cited by Blesch, 2009, p. 16). In June 2009, Alabama court found Scrushy guilty of fraud and he breached his fiduciary duties. (Shareholder’ Litigation, 2011, p. 162). The court also rescinded three employment contracts for engaging in fraud and “consciously disregarding his responsibilities to HealthSouth,” (Shareholder’s Litigation, 2011, p. 163). He was required to pay back the monies to HealthSouth.
In 2011 the 11th Circuit Court of Appeals throws out two of the honest services fraud charges against Scrushy causing, in January 2012, the sentence to be reduced from 82 months to 70 months. In 2012, Scrushy moved from federal prison to a halfway house to home detention. Scrushy is now on three year probation.


In conclusion, Scrushy and his executives made unethical and illegal decisions. The position that Scrushy took during the trial, that his directions to his accountants to fix the books did not imply that he wanted them to falsify documents, does not eliminate his responsibility as a CEO. When he was told that they were going to inflate the books he had a moral and legal responsibility to correct the plan of action. Scrushy made some excellent donations with the money he swindled but he also lived a life of a movie star with money he did not honestly earn. In the end he has been court ordered to pay back the stockholders, complete jail time and cannot run any public company. However, will this change anything? Will the individuals that suffered loss of their income and hope be restored? Will these extensive measures stop the next Enron or Scrushy executive? Will the next set of accountants that are being asked to cook the books think of the SOX law and the criminal penalties? Is the love of money the root of all evil? Further extensive research will have to be conducted on individuals that commit white collar crimes.


Barr, P. (2005). Scrushy plots a comeback. As HealthSouth works hard to put a fraud scandal in

the past, its acquitted founder studies how he can regain the company. Modern

Healthcare, 35(27), 6.

Blesch, G. (2009). Being held accountable. Scrushy ordered to pay billions; L.A. exec pleads guilty. Modern Healthcare, 39(25), 16.

Bond, Patti, “CEO’s Troubles like a Country Song,” Atlanta Journal and Constitution, March

22, 2003

Faulk, K. (2011, March 28). Richard Scrushy garage sale means big bargains. The Birmingham

News, p. 1. Retrieved November 28, 2012, from doi:

Heylar, J., Cherry, B., and Neering, P., “The Insatiable King Richard. He started as a Nobody.

He became a hotshot CEO. He tried to be a country star. Then it all came crashing down. The Bizarre Rise and Fall of HealthSouth’s Richard Scrushy,” Fortune, July 7, 2003,

p. 76.

Heylar, John. (2005). “The man who saved Richard Scrushy,” Fortune, 152(2), 26.
House of Representatives Hearings, 2003 “The Financial Collapse of HealthSouth,” Subcommittee on Oversight and Investigations Of the House energy and Commerce Committee. doi:
Gordon, A. (2010). In re HealthSouth Corp. Securities Litigation. New York Law School Law Review, 55(2),671-681.
Pellet, Jennifer, “HealthSouth’s Digital Dream,” Chief Executive Officer Bill Owens, “PR Newswire, September 25, 2002
Piotrowski, J. (2003). HealthSouth's most wanted. Founder and former chairman and CEO Richard Scrushy is indicted for 85 counts of conspiracy,
Shareholder's Litigation. (2011). Business Torts Reporter, 23(6), 162-164.
Taylor, Jackie. (2005). Fluke or Failure? Assessing the Sarbanes-Oxley Act after United States v. Scrushy. UMKC Law Review, 74(2), 411-434
The Friend of the Devil (2003). Healthcare Purchasing News, 27(5), 4.
The Securities and Exchange Commission. (2003) Retrieved November 27, 202 from doi:

Vogt, Katherine, “Ousted HealthSouth Chief invokes the Fifth,” American Medical News,

November 3, 2003, p.29

Watson, Stephanie, “Scrushy, Richard M. 1952-.” International Directory of Business

Biographies, 2005. Retrieved November 27, 2012 from



Similar Documents

Free Essay


...Abstract --------------------------------------------------------------------------------------4 Introduction ------------------------------------------------------------------------------5 & 6 The role of Auditors at HealthSouth ---------------------------------------- 7 & 8 SEC Investigation ----------------------------------------------------------------------------9&10 Impact on Stakeholders ---------------------------------------11, 12, 13 & 14 Outcome and Fairness In Punishment ---------------------------------------- 15, 16 & 17 Conclusion -----------------------------------------------------------------------------------------18 References-------------------------------------------------------------------------------19, 20 & 21 ABSTRACT This paper will investigate the financial reporting scandals of the past decade at HealthSouth and the resulting U.S. legislative attempts to impose ethical behavior and control the incidence of new reporting problems via Sarbanes-Oxley legislation. This paper begins with a brief historical perspective followed by assertions of ethical consequences of legislation with discussions of key recent corporate scandals, the motives for the frauds, greed, the impact on stakeholders and the consequences of the outcome of guilty verdict. INTRODUCTION Richard Scrushy, once a high school dropout, worked as a gas......

Words: 4758 - Pages: 20

Free Essay

Healthsouth & the Scrushy Way

...use this as a reference. Table of Contents 1. Assignment cover sheet p. 0 2. Title page: HealthSouth and the Scrushy Way p. 1 3. Table of Contents p. 2 4. Introduction p. 3 5. Government Subsidies p. 3 6. Signs of Corruption p. 4 7. Ethical issues of HealthSouth p. 5 8. Management of HealthSouth p. 5 9. Intimidation and Cooperation p. 6 10. Culture of Corruption p. 7 11. Lavish Lifestyle and Philanthropy p. 8 12. Impact on Stakeholders p. 9 13. Charges p. 10 14. Outcome and Fairness of Punishment p. 10 15. Conclusion p. 12 16. References p. 13 HealthSouth and the Scrushy Way Richard Scrushy overcame challenging teenage years, dropping out of high school and later obtaining his GED to become one of the most successful executives in the United States. Scrushy did so by subsequently getting his respiratory therapist certification and opening his own rehabilitation center, an all-in-one medical facility that led many to copy his idea. Scrushy founded HealthSouth in 1996 using $1 million in seed capital and turned it into a hugely successful medical services empire worth over $4 billion at its prime (Haddad, Weintraub, & Grow, 2003). HealthSouth had become the largest provider of outpatient surgery, rehabilitation, and diagnostic and imaging services......

Words: 3288 - Pages: 14

Premium Essay


...Campus HealthSouth Rehabilitation Hospital 2935 colonial Drive Columbia, SC 29203 (803) 401-1331 HealthSouth: Columbia - HealthSouth is one of the nation's largest healthcare services providers, operating Acute Rehab and Outpatient Rehab Centers nationwide. Our vast network of highly skilled professionals and the latest equipment and technology offers patients access to high-quality healthcare. HealthSouth Rehabilitation offers a low therapist to patient ratio guaranteeing the patient gets the one-on-one attention they deserve. Treatment is available for individuals who have suffered a major accident or illness, including trauma, stroke, head injury, spinal cord injury, hip fracture, amputation, arthritis, chronic pain, neuromuscular and pulmonary diseases. HealthSouth treats people of all ages on an outpatient basis with specialized rehabilitation programs for adolescent, adult, and geriatric populations. HealthSouth Rehabilitation Hospital of Columbia offers comprehensive outpatient therapy services. HealthSouth Rehabilitation Hospital of Columbia is a 96-bed acute care rehabilitation hospital located in Columbia, S.C. Established in 1989, we are the only freestanding comprehensive medical rehabilitation hospital in the Midlands, serving Lexington, Richland, Kershaw and surrounding counties. Health South Rehabilitation Hospital is own and operated by The Gores Group, in Los Angeles, a private equity firm. For-profit HealthSouth......

Words: 1895 - Pages: 8

Premium Essay

About Enron Scandal

...jury with a deluge of complicated and, sometimes, mind-numbing corporate conference calls in an effort to show the defendants were unaware of any corporate chicanery at the company. Skilling gets 24 years Lessons from Enron: Just say 'sorry' Meet the players It's a strategy that defense teams have widely used in the recent corporate trials ranging from HealthSouth (Research) to WorldCom with mixed results. But with Enron -- the granddaddy of all cases of corporate malfeasance -- Lay and Skilling's dynamic duo of defense attorneys, Houston-based Michael Ramsey and Los Angeles-based Daniel Petrocelli, are taking their defense one step further. The attorneys contend that not only were the defendants unaware of any wrongdoing but, with the exception of a few bad apples, Enron never committed any fraud. They blame negative publicity, courtesy of the former CFO Andrew Fastow's questionable side deals, and a lack of market confidence in the post-bubble environment for the company's implosion in December 2001 -- an event that sparked billions of dollars in losses for investors and paved the way for a slew of corporate scandals. A brilliant but risky defense "It's a tough thing to sell," he said. "If the prosecutors can prove the fraud occurred and the defense lawyer insists it didn't happen, you're in trouble right there. " Parkman said HealthSouth's Scrushy was able to win an acquittal because the defense chose to admit to the jury that fraud had occurred at the company. By......

Words: 894 - Pages: 4

Premium Essay

Healthsouth- Summary

...Teaching Notes HealthSouth Corporation: Fraud, Greed and Corporate Governance Case Summary During the 1990s, Richard M. Scrushy, the former CEO of HealthSouth Corporation, engineered many acquisitions of rehabilitation clinics, outpatient surgical care operators, nursing homes and other health care companies. Mr. Scrushy had been a respiratory therapist who spotted a niche in the health care market and utilized his entrepreneurial talents, marketing skills, and super salesmanship to set up and run what became the third largest publicly held company in Alabama. Eventually, HealthSouth became the largest provider of ambulatory surgery and rehabilitative health care services in the United States with 1,700 facilities and 51,000 employees. In 2003, the Securities and Exchange Commission (SEC) accused the company and Mr. Scrushy of inflating earnings to the tune of $1.4 billion since 1999. In November 2003, a federal grand jury indicted Mr. Scrushy on 85 counts including conspiracy, securities fraud, money laundering and charges related to overstating HealthSouth’s earnings by nearly $3.0 billion. According to federal investigators, the company overstated earnings to meet analysts’ earning estimates, while hiding the accounting fraud from the auditors. However, questions were raised whether the auditors failed to find or simply overlooked the fraud at HealthSouth. Central to the investigation was the issue of what role Mr. Scrushy played in “cooking the books.” However, as the......

Words: 362 - Pages: 2

Premium Essay

Healthsouth: Fraud, Greed & Corporate Governance

...HealthSouth: Fraud, Greed & Corporate Governance Marilyn J. Bordeaux HCS 5339 Rachael Kehoe HealthSouth: Fraud, Greed & Corporate Governance During the 1990s, Richard M. Scrushy, the former CEO of HealthSouth Corporation, engineered many acquisitions of rehabilitation clinics, outpatient surgical care operators, nursing homes and other health care companies. In 2003, the Securities and Exchange Commission (SEC) accused the company and Scrushy of inflating earnings to the tune of $1.4 billion since 1999. In November 2003, a federal grand jury indicted Scrushy on 85 counts including conspiracy, securities fraud, money laundering and charges related to overstating HealthSouth’s earnings by nearly $3.0 billion. According to federal investigators, the company overstated earnings to meet analysts’ earning estimates, while hiding the accounting fraud from the auditors. However, questions were raised whether the auditors failed to find or simply overlooked the fraud at HealthSouth. Central to the investigation was the issue of what role Scrushy played in “cooking the books.” However, as the case unfolded, it highlighted many other issues such as: The role of Board of Directors in corporate governance; the role of the auditors; the effect of conflict of interest between an accounting firm and its consulting arm on auditing; whether the relationship between an investment bank and a company affects the quality of the bank’s research reports on the company; whether the......

Words: 3204 - Pages: 13

Premium Essay

10 Major Accounting Scandals

...Unraveling the Details of 10 High-Profile Accounting Scandals written by: ciel s cantoria • edited by: Linda Richter • updated: 12/30/2010 Before digging into the dirty details of each of these major accounting scandals, we’ll take a look at some of the tools that were used to first detect them – including sophisticated accounting systems and advancements in high-tech communication. Technology Fighting Against White Collar Fraud Looking back at the 10 major accounting scandals that changed the business world, it was noted that most of their unraveling came about during the turn of the new millennium, which was a time when the American trade and industries were beginning to experience the benefits and detriments of high-tech computerization. Information storage and communication became sophisticated, which made possible the compilation of hordes of information in an instant. Recording and verification of accounting transactions in realtime were made easier and more accurate, which facilitated the reconciliation of supporting documents versus sources, with very little effort needed. Federal regulators were provided with data that revealed the corrupt practices of high-profile companies and their CEOs. Their bankruptcies became inevitable as the Securities and Exchange Commission (SEC) and financial analysts began to see the signs of irregularities among numerous companies. When the SEC ordered the restatement of their financial reports in accordance with the GAAP rules, it...

Words: 5070 - Pages: 21

Premium Essay


...Lehman Brothers Scandal Corporate governance is defined as a system that control and direct a corporation (Shleifer 1997). Governance arrangement specifies dissemination of responsibilities and rights among different contributors in the corporation like financial managers, board of directors and shareholders. It also specifies procedures and rules of decision making in corporate affairs. Besides, corporate governance has plays its role to encourage organization to produce value through innovation as well as development process. Lehman Brothers would be further analyze and discussed in term of accounting scandal below. Lehman Brothers was the fourth largest United States investment bank when it collapsed and this has affected 25,000 employees worldwide. Thus, the significant factors that cause this scandal of corporate failure to be happened would be analysed below. Firstly, Lehman has high degree of excessive debt and leverage which mean ratio of total assets to shareholders’ equity in 2007. Furthermore, it has a huge mortgage securities portfolio that cause this corporate to becoming expose to declining market conditions (Chiquier 2004). Besides, it has the largest debt of $619m, which is the largest bankruptcy filling in history which surpasses Enron. Lehman’s shares decreases a huge amount of 48% concerning it would be the next firm to fail in its corporate governance as it is the second largest underwriter of mortgage-backed securities. Consequently, the declining......

Words: 572 - Pages: 3

Premium Essay

Scandal bank scenario. If Enron’s customers were willing to continue and use the company’s service, Enron would have been able to avoid bankruptcy. Enron might have had large debts and obligation but they had also large revenue, once Enron lost their credibility they also lost their customers, as they were not willing to continue to use their services. Andersen was a large and established firm, and losing a company like Enron, as their client would not had led to their end, but the company lost their credibility in the eyes of their clients. As a result of that, many clients decided to terminate their contracts Andersen. Following the scandal with Enron, Andersen lost a huge amount of customers, which led the to declare bankruptcy. There are different reasons why so many companies fired Andersen. A strong opinion is that once the scale of the scandal was known, the clients felt betrayed; it is sort of un-American to do such thing. Clients did not want to be involved with a company that causes so many people to loss their job, and causes much harm to many more. Lack of integrity was linked to both Enron and Andersen. Once a perceived lack of integrity is attached to a person, it is really hard to recover from that; it causes irreparable damage. If a lack of integrity is linked to a person, all of his actions will be looked over with suspicions. For example if a tax accountant is caught filling his own taxes unlawfully, any other tax return that he will work on will be......

Words: 2037 - Pages: 9

Free Essay


...was “a healthy product” that was merely mislabeled (Mintz, 1987). In court, when Hoyvald was asked why he didn’t immediately order a product recall upon first learning of possible adulteration, he replied, “And I could have called up Switzerland and told them I had just closed the company down. Because that is what would have been the result of it” (Traub, 1988). Hoyvald first claimed to have known nothing of the adulterated juice concentrate, then later said he had no proof of adulteration, and in any case he had been acting on the advice of Nestlé attorney Thomas J. Ward (who, by the way, had been involved in Nestlé’s response to the boycott against its infant formula marketing practices and, more recently, the Guinness financial scandal in Great Britain). Lavery claimed that he knew of allegations that the concentrate was adulterated, but had no proof. Nestlé attorneys, who defended the two, claimed that the blame belonged solely on the shoulders of lower-level employees (Welles, 1988). The Trial Ends The New York State case against Beech-Nut came to an end in March 1988, when the company paid a $250,000 fine in restitution for the crime of selling adulterated apple juice. The company was fined another $2 million by federal courts for the violations of federal food and drug laws to which it had pleaded guilty in the fall of 1987 (“Beech-Nut Pays,” 1988: D10). The final sanction levied against Beech-Nut came in April 1989, when it was barred from doing......

Words: 3659 - Pages: 15

Premium Essay


...asset of 556 billion, provides insurance service for more than 150 different countries and it has over 630, 000 employees over the world. Even though AIG is such a giant corporation, it has encountered financial problems in the early 2000s. Under financial pressure and a lack of internal control, AIG have committed frauds resulting in several scandals. One of the accounting scandals was disclosed during 2005 which involved a material mis-statement due to false transactions during 2000. This scandal set to prelude leading the downfall of AIG in 2008. In this paper, I will analyze the cause, the transactions and finally effects of the scandal. The Accounting Scandal The Players The CEO of AIG was Maurice “Hank” Greenberg. Greenberg joined AIG in 1962 and led AIG for thirty eight years until his retirement in March 2005. Greenberg was not only the CEO, but also the chairman of the board of AIG. AIG also have several subsidiaries, which include National Union Fire Insurance Company of Pittsburgh (NUFIC) and Hartford Steam Boiler Inspection (HSB). Their financial information are consolidated in AIG’s financial statements. The scandal also involves another corporation General Re Corporation. General Re is a subsidiary of Berkshire Hathaway, Inc., an investment group run by the billionaire Warren Buffet. General Re also has subsidiaries all over the world and together and it is one of the biggest reinsurance companies in the World. Reinsurance companies are entities......

Words: 281 - Pages: 2

Premium Essay

Watergate Scandal

...It was suggested that the President had tried to repair the damages that were caused the Watergate scandal in the first article. From a speech President Nixon had given, it showed that there were a lot things that still needed to be done regarding the scandal. The article stated that the officials under the Watergate scandal were cheating, lying and engaging in illegal activities while in high positions of the government. The people believed that the president did not stand up to the crisis and that he had only done the bare requirements for the situation at hand. The people stongly believed that President Nixon should have done something more to eliminate the Watergate scandal as soon as it was leaked. The article had also showed that the people were not happy with President Nixon’s actions by only accepting the resignations of H.R. Haldeman and John Ehrlichman, (Genovese, 1999). He had also accepted the resignation of Attorney General Kleindienst and appointed Elliot Richardson and instructed him to handle the crisis. Finally, the President had made the correct decision by dismissing his White House Counsel John Dean. The second article portrays President Nixon as a good, moral leader. It tried to defend the President from being impeached by acknowledging his achievements. The article also showed that he was human and not perfect. The actions of the President by trying to resolve the crisis, led to speculations by the Chicago Tribune's editorial to leave office...

Words: 780 - Pages: 4

Free Essay

Healthsouth: Corporate Governance

...INTRODUCTION AND HISTORY HealthSouth Corporation is the nation’s largest provider of inpatient rehabilitative healthcare services1; it was founded in 1984 by Richard M Scrushy along with four other people as Amcare, Inc., it opened its first facility in Little Rock Arkansas and another one a year later in Birmingham Alabama. In 1986 the company went public and was listed on the NASDAQ Stock Exchange under ticker symbol HSRC. Throughout the 1980’s and 1990’s the company expanded rapidly through mergers and acquisitions. By 1992 the company had $400 Million in annual revenues and by the end of 1999 the company’s annual revenues exceed $1 Billion and it had expanded to 118 inpatient rehabilitation hospitals, 5 medical centers, 1,379 outpatient rehabilitation centers, 230 surgery centers, 129 diagnostic centers and 124 occupational medicine centers.2 HealthSouth has always participated actively in the Medicare program and they’ve received Medicare reimbursements since the eighties and nineties, to extent that over 40% of their revenues came from the Medicare program and beneficiaries in that time period, and in their more recent filings this percentage has increased to a whopping 70% in 2010.3-4 HealthSouth’s stock trades on the New York Stock Exchange (NYSE) under the ticker symbol HLS, with a December 9, 2011 closing price of $16.94, a market capitalization of roughly $1.61 Billion. In 2010 their revenues were $1.99 Billion and their Net Income $899 Million.5 From......

Words: 1942 - Pages: 8

Premium Essay

Healthsouth - the Scrushy Way

...HealthSouth: The Scrushy Way Vonetta M. Henderson Northcentral University Introduction The Enron and Tyco scandals brought visibility to corporate scandals. The magnitude of these scandals resulted in the Sarbanes-Oxley (SOX) Act in 2002. Richard M. Scrushy and HealthSouth Corporation were the first CEO and company to be indicted under the SOX Act. HealthSouth was charged with filing false financial statements with the SEC to hid poor financial conditions from Wall Street. An audit conducted by PricewaterhouseCoopers concluded that HealthSouth overstated its cumulative earnings between $3.8 billion to $4.6 billion (Weld, Bergevin, & Magrath, 2004). Although Scrushy was charged with 85 counts, he pled not-guilty, claiming that he was unaware of the fraudulent activities that had occurred. Scrushy was later exonerated as the investigation into the company found no evidence that Scrushy orchestrated or participated in any financial wrongdoings. Five financial executives and 10 other company officials pled guilty to a variety of charges. Background Richard M. Scrushy founded Amcare, Inc. in 1984. The company opened its first facility in Little Rock, Arkansas and one year later opened a facility in Birmingham and changed its name to HealthSouth Rehabilitation Corporation (HRC). In 1986, HRC went public with its initial public offering (IPO) on the NASDAQ stock exchange (HealthSouth Corporation, 2010). In 1988, HRC moved......

Words: 1035 - Pages: 5

Premium Essay

Accounting Scandal of Worldcom

...MANAGERIAL ACCOUNTING WORLDCOM How did it cook the books? Nguyen Bao Khanh Student ID: FB60162 Class: FB0662 May 19th, 2012 APENDIX 1. WorldCom’s accounting scandal 2. How did WORLDCOM cook its books? 3. Conclusion WORLDCOM headquarter in Virginia, USA. WORLDCOM’S ACCOUNTING SCANDAL WorldCom, established in 1983, whose CEO was Bernard Ebbers, was the second largest long distance phone company in the US after AT&T. It could be seen as a pride of America until it got into one of the biggest accounting scandals in the American history which finally led to its bankruptcy in 2002. On July 21st, 2012, WorldCom filed for bankruptcy, which was worth 103.9 billion USD and became the largest filing at its time. Its CEO, Bernard Ebbers, was found totally guilty and sentenced to 25-year imprisonment regarding the crime of stock and accounting fraud. Before WorldCom, the world had seen several cases of famous, or infamous, financial and accounting frauds, including Enron, Tyco, Aldelphia, Global Crossing and HealthSouth. Such cases, we can say, were quite complicated to trace, but WorldCom used a simple recipe to cook the book, which will be illustrated below. HOW DID WORLDCOM COOK ITS BOOKS? To understand the fraud occurring at WorldCom, we should basically understand the difference between operating and capital expenditures first, and then we would move on to the details on how the books were adjusted to cause problems. To begin with, what are operating and......

Words: 951 - Pages: 4