Former HealthSouth execs get probation, fines

Three former HealthSouth executives avoided serving time in jail for their roles in a multibillion-dollar accounting scandal at the outpatient services giant in the same week that the beleaguered company said it had completed a forensic review of its past accounting practices.

Sentences were handed out June 2 and June 3 for former assistant comptroller and chief information officer Kenneth K. Livesay, former chief financial officer Malcolm McVay and former senior vice president for tax Richard Botts. Each was sentenced by a federal judge to six months of home detention, 60 months of probation and ordered to pay fines and forfeit some profits.

All three had pleaded guilty to various fraud and conspiracy charges. They are among the 17 former HealthSouth executives who have faced criminal charges since news of the Justice Dept.'s fraud investigation first broke in March of 2003.

The Birmingham, Ala.-based company has been accused of inflating its earnings by at least $2.7 billion to meet Wall Street expectations. Founder and former chief executive Richard M. Scrushy, who was ousted from the company last year, was alleged to be the mastermind of the fraud. He is awaiting trial.

After the scandal broke, HealthSouth's board ordered a forensic audit of its accounting practices to determine how the fraud was carried out and what controls could be used to prevent it from happening again.

The audit report, which was filed June 1 with the Securities and Exchange Commission, found about $3.4 billion in fraud and bad accounting. It was broken down into more than $2.7 billion in false or unsupported entries in HealthSouth's books and another $632 million in misstatements from improper accounting.

"The accounting fraud at HealthSouth was by any standard both enormous and complex. Its concealment over the course of nearly seven years required considerable effort and, in some cases, luck," the company said in its report.

HealthSouth said the figures were in line with previous estimates. In January, the company said it expected a fraud range of $3.8 billion to $4.6 billion, although those estimates might have been constructed using slightly different guidelines.

The company is continuing its scrutiny of past financial statements. Audited financial reports are expected to be completed early in 2005.