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A Times Editorial

The trust stops here

© St. Petersburg Times
published March 23, 2003

In the corporate hall of shame, a new name has been added to the likes of Enron and WorldCom. It's HealthSouth, the largest chain of rehabilitative hospitals and clinics.

If the allegations of federal prosecutors are true, HealthSouth founder and chief executive Richard M. Scrushy was audacious in his deception. From the moment the company went public, Scrushy created fictitious earnings and assets to meet analysts' profit expectations, according to the complaint that charges Scrushy with accounting fraud. That way the stock price rose, making Scrushy's holdings more valuable.

Scrushy called the sessions at which company officials cooked the books "family meetings" and he once told other executives the fraudulent bookkeeping would continue "until I sell my stock," the complaint says. It worked, at least for Scrushy. Before the stock price plunged from $14 a share to $3 recently, he netted $77-million, adding to his $10.5-million in annual salary and bonus.

The losers were legitimate investors and company employees. With a $345-million bond issue maturing in a couple of weeks, HealthSouth's viability is now in doubt.

Like the spectacular frauds before it, HealthSouth's tale if full of ethically deprived executives and clueless auditors. Ernst & Young, the company's auditor, claimed to be dumbfounded by the revelations. It said the same thing a few years ago when CUC International was exposed for similar illegal behavior while Ernst & Young was examining that company's books.

If earnings statements mean nothing and auditors can't be trusted, why would anyone invest in the stock markets? Fewer investors do, and distrust of the system likely has played a role in the decline of stock values.

There is one sure way to send corporate America the message that fraudulent practices won't be rewarded. If Scrushy is convicted, he should be deprived of all of his ill-gotten gains and sent to prison for a lengthy sentence. Until the corporate crooks start paying the price for their behavior, it won't stop.

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