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SEC files charges against HealthSouth

By Jay Reeves

Associated Press Writer

BIRMINGHAM, Ala. -- Federal charges were filed against HealthSouth Corp. and its chairman for allegedly overstating profits by at least $1.4 billion. Meanwhile, the government announced that a former company executive who pleaded guilty to fraud charges is cooperating with an investigation into the health-care giant.

The Securities and Exchange Commission claimed in a civil accounting fraud complaint filed Wednesday that senior accountants, acting on chairman Richard Scrushy's orders, gathered in what they called "family meetings" to falsify earnings.

The complaint said the company had issued fake earnings at Scrushy's instruction since it went public in 1986. The SEC halted trading in the company for two days.

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"HealthSouth's fraud represents an appalling betrayal of investors," said Stephen M. Cutler, SEC enforcement director.

The Birmingham-based company reported income before taxes of $1.6 billion from 1999 through June 30, 2002, but it really made only $169 million, the SEC complaint said.

HealthSouth spokeswoman Kristi Gilmore said the company had no comment.

Scrushy's attorney William Clark issued a statement late Wednesday saying his client and HealthSouth have been cooperating with the SEC.

"Mr. Scrushy was shocked and surprised at the unexpected actions taken by the government over the past two days," Clark said.

The Justice Department also announced Wednesday that the company's former chief financial officer, Weston Smith, 42, has agreed to plead guilty to securities fraud, conspiracy and wire fraud charges, as well as false certification of financial records.

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