HealthSouth was the healthcare company involved in the roughly $2.7 billion accounting fraud uncovered in the early 2000s.
The scheme centered on inflating HealthSouth’s reported earnings and assets so the company would meet Wall Street expectations. Federal prosecutors alleged that, from 1996 to 2003, executives made fraudulent accounting entries that added approximately $2.7 billion in fictitious income to the company’s books. The SEC separately alleged that earnings had been overstated by at least $1.4 billion.
The scandal became public in 2003 after an FBI investigation and federal charges against founder and chairman Richard Scrushy. Numerous HealthSouth executives cooperated with investigators and pleaded guilty. Scrushy was acquitted in his 2005 criminal trial, though he later faced civil liability and other legal proceedings.
The company itself was not simply a failed startup: HealthSouth had been one of the largest U.S. providers of outpatient surgery, diagnostic, and rehabilitation services. It later changed its name to Encompass Health, so references to the scandal may appear under either corporate identity.