Healthsouth Corporation: The First Case Against A Company Under The Sarbanes-Oxley Act

Abstract

HealthSouth Corporation, one of the nation’s largest healthcare providers, was the first company charged under the provisions of the Sarbanes-Oxley Act. HealthSouth’s CEO, Richard Scrushy, and 16 of its executives were indicted for allegedly using a sophisticated scheme to overstate the company’s earnings by as much as $2.7 billion between 1986 and 2002. Fifteen of the sixteen indicted executives pleaded guilty and another was convicted by jurors. After five months of court hearing, Scrushy was acquitted of all criminal charges. However, he remains a defendant in 40 cases filed by former HealthSouth investors and creditors. This case is based on court materials and other publicly available information and has been used in several undergraduate and MBA courses. The case and the accompanying teaching notes have proven to be an effective tool in teaching students the Sarbanes-Oxley Act and in helping students become more ethically conscious.