HealthSouth was at the center of the 2003 accounting scandal involving about $2.7 billion in overstated earnings.
HealthSouth operated rehabilitation hospitals and outpatient healthcare facilities in the United States. Federal investigators said executives had inflated earnings and assets through false entries so the company could meet Wall Street expectations and maintain its stock price.
The scandal became public after the FBI arrested CEO Richard Scrushy in March 2003. Investigators relied heavily on testimony from former chief financial officer Weston Smith and other executives, who described a system for manufacturing accounting entries. Scrushy was acquitted of criminal fraud charges in 2005, although he was later convicted in a separate bribery case involving former Alabama governor Don Siegelman.
HealthSouth survived the scandal after restructuring and later changed its name to Encompass Health. The case is distinct from WorldCom’s fraud because HealthSouth used fabricated accounting entries across financial statements rather than capitalizing telecommunications expenses.