Labels: 2006, Betsy Blumenthal, books, Ghost Word, Kroll

Labels: 2006, Health South

Labels: 2006, Health South

Labels: 2006, bribery, Health South

Status of high-profile corporate scandals

November 23, 2005
By The Associated Press

A look at some of the high-profile corporate scandals of recent years and the status of legal action in each.

ADELPHIA COMMUNICATIONS CORP. -- Michael Rigas, a son of the founder of Adelphia Communications Corp., pleaded guilty on Wednesday to a charge of making a false entry in a financial record, eliminating the need for his retrial on securities fraud and bank fraud charges in a scandal that forced the cable giant into bankruptcy. John Rigas and his son Timothy were convicted in federal court last year of conspiracy, bank fraud and securities fraud. On June 20, John Rigas was sentenced to 15 years in prison, and Timothy Rigas to 20 years. They are free pending appeal. A fourth executive, Michael Mulcahey, was found not guilty of conspiracy and securities fraud. Last month, John and Timothy were indicted in Philadelphia on charges they and other family members didn't pay $300 million in taxes.

WORLDCOM INC. -- Bernard Ebbers, who as CEO of WorldCom oversaw the largest corporate fraud in U.S. history, was sentenced on July 13 to 25 years in prison. The sentence was handed down in Manhattan three years after WorldCom collapsed in an $11 billion accounting fraud, wiping out billions of investor dollars. A judge ruled in September that Ebbers can stay out of prison while he appeals his conviction.

HEALTHSOUTH CORP. -- Former CEO Richard Scrushy was acquitted on June 28 on all 36 counts of conspiracy, false reporting, fraud and money laundering in an alleged $2.7 billion earnings overstatement at the rehabilitation and medical services chain over seven years beginning in 1996. He blamed the fraud on 15 former HealthSouth executives who pleaded guilty. Hannibal "Sonny" Crumpler, a former HealthSouth executive, the second person to stand trial in the fraud was convicted last Friday of conspiracy and lying to auditors for his role in the fraud.

TYCO INTERNATIONAL LTD. -- Former Chief Executive L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz were convicted June 17 on 22 of 23 counts of grand larceny, conspiracy, securities fraud and falsifying business records. Prosecutors accused the two of conspiring to defraud Tyco of millions of dollars to fund extravagant lifestyles. The two were sentenced Sept 19 to eight and one-third to 25 years in prison. A judge refused to release Kozlowski and Swartz on bail while they are appeal their convictions.

ENRON CORP. -- Enron founder Kenneth Lay, former CEO Jeffrey Skilling and former top accountant Richard Causey are scheduled to go to trial in January on federal fraud and conspiracy charges. Former CFO Andrew Fastow pleaded guilty in January 2004 to two counts of conspiracy, admitting to orchestrating schemes to hide the company's debt and inflate profits while pocketing millions of dollars. He agreed to serve the maximum 10-year sentence, which will begin in July 2006, after he testifies against his former bosses.

Fastow's wife, Lea Fastow, completed a yearlong sentence in July on a misdemeanor tax charge for failing to report her husband's kickbacks. Former Enron treasurer Ben Glisan Jr. is serving a five-year sentence for his role in the scandal. And two former Merrill Lynch & Co. executives were sentenced to short prison terms for their roles in a bogus Enron sale of power barges.

CREDIT SUISSE FIRST BOSTON -- The company's former investment banking star, Frank Quattrone, was convicted in May 2004 on federal charges of obstruction of justice, after his first trial ended in a hung jury. Quattrone, who made a fortune taking Internet companies public during the dot-com stock boom, was sentenced to 18 months in prison. He is free on bail, appealing the conviction.

MARTHA STEWART: The founder of the homemaking empire was released March 4 after serving five months in prison, and finished serving an additional five months and three weeks of home confinement at the end of August. She was convicted in federal court last year of conspiracy, obstruction of justice and making false statements related to a personal sale of ImClone Systems Inc. stock. Her former broker at Merrill Lynch, Peter Bacanovic, served a five-month sentence and was released June 16. He still faces five months of home confinement. Stewart's conviction was not related to the company she founded, Martha Stewart Living Omnimedia Inc.

CENDANT CORP.: Former Cendant Corp. Vice Chairmen E. Kirk Shelton was convicted in January of conspiracy and securities, wire and mail fraud. He was sentenced on August 3 to 10 years in prison and ordered to pay full restitution for his role in an accounting scandal that cost investors and the company more than $3 billion. Shelton was ordered to pay $3.27 billion to Cendant including an initial "lump sum" payment of $15 million last month. Shelton delivered cash, company stock and company-funded insurance policies, a combination that Cendant said is at least $2.4 million short and fluctuates daily. Shelton stood trial with former Cendant Chairman Walter Forbes, whose case ended in a mistrial and will be retried. Four other former executives have already pleaded guilty.

Labels: 2006, Andy Fastow, Cendant, Dennis Kozlowski, Enron, Health South, money laundering, Tyco

Probation, Again, for HealthSouth

Stephen Taub, CFO.com
September 20, 2005

Upon further review, the original sentence pronounced on a former HealthSouth Corp. executive remains the same. U.S. District Judge U.W. Clemon again sentenced former senior vice president for tax, Richard Botts, to probation.

Botts had pleaded guilty to conspiracy, mail fraud, and falsifying records for his part in the health care company's $2.7 billion accounting fraud. Earlier this year, Judge Clemon had originally sentenced him to five years' probation and six months' home detention, plus a $10,000 fine and a forfeiture of $265,000. Prosecutors had sought a sentence of more than three years in prison.

In June, the 11th U.S. Circuit Court of Appeals vacated the sentences of Botts and former CFO Michael Martin, who also got probation. The appeals court ruled that Clemon did not give any reasons for his "extraordinary departure" from federal sentencing guidelines.

As it turns out, Clemon stuck with his original decision, which was his prerogative. This time, however, he explained his thinking. Botts "was a late-comer in an ongoing conspiracy," maintained the judge, according to Reuters, "not one of the inner circle."

Clemon also cited Botts's cooperation in the investigation of former chief executive officer Richard Scrushy, who was later acquitted of fraud charges related to the accounting scandal. "Where the head honcho is found not guilty," Clemon reportedly said, incarceration of a minor participant "might actually encourage disrespect of the law."

Martin is also scheduled for resentencing this week.

Original article appears here.

- MDT

Labels: 2006, Health South

Ex-HealthSouth COO Has Charges Dropped

Stephen Taub
CFO.com
July 20, 2005

Federal prosecutors moved to dismiss the indictment of former HealthSouth Corp. president and chief operating officer James P. Bennett for his role in the company's $2.7 billion accounting scandal, according to press reports. The one-sentence motion did not provide a reason for the request, according to the Associated Press.

Bennett was indicted in February — shortly after former chief executive officer Richard Scrushy went on trial — on 39 counts of insider trading; conspiracy to commit wire, mail, and securities fraud; making false statements to HealthSouth's auditor, Ernst & Young; money laundering; and lying to the Federal Bureau of Investigation, reported the Birmingham Business Journal.

According to the Journal, Bennett was the only former employee formally charged with insider trading in connection with the HealthSouth scandal. Knowing that fraud was taking place, the government alleged, Bennett sold 960,000 shares of HealthSouth stock, for $17.4 million, the newspaper reported...

The full CFO.com piece appears here.

-- MDT

Labels: 2006, Health South, insider trading, money laundering

Sentence's message: Crime doesn't pay

By Greg Farrell
USA TODAY

NEW YORK — One win, one loss and one big trial to go.

That's essentially where the Justice Department's war on corporate crime stands after Wednesday's stiff jail sentence for former WorldCom CEO Bernie Ebbers and the decision by an Alabama prosecutor to give up completely on any further criminal charges against former HealthSouth CEO Richard Scrushy.

Other corporate fraud prosecutions continue in Denver, New York and elsewhere, but the final hurdle in the campaign against accounting fraud in Corporate America will be in January, when the trial of Enron's top three former executives — Ken Lay, Jeff Skilling and Rick Causey — begins in Houston.

"That's going to be the climax" of the government's campaign against corporate crime, says Peter Henning, a law professor at Wayne State University. "But the sentence for Ebbers may well be the high-water mark."

Even with some of the government's misfires, Ebbers' 25-year prison sentence has alerted corporate executives that crime doesn't pay, says Tom Newkirk, a former associate director of enforcement at the Securities and Exchange Commission who is now at Jenner & Block.

"For those who aren't motivated by doing the right thing for its own sake, the efforts of the Justice Department and the SEC over the last three years ought to strike the fear of God into them," he says.

According to Jacob Frenkel, a former prosecutor now at Shulman Rogers, "The ultimate objective of the deterrent effect has been achieved."

But the announcement Wednesday by Alice Martin, the U.S. Attorney in Birmingham, Ala., that she would not pursue any more criminal charges against Scrushy showed that prosecutors don't always get their way. Two weeks ago, Scrushy was acquitted of masterminding a $2.7 billion fraud at his company, even though five former chief financial officers testified against him.

Labels: 2006, Health South, Peter Henning

HealthSouth case presses ahead

By Jay Reeves
ASSOCIATED PRESS
July 4, 2005

BIRMINGHAM, Ala. -- Federal prosecutors aren't finished with HealthSouth Corp., despite the acquittal of ousted Chief Executive Officer Richard Scrushy in a $2.7 billion accounting scandal. Two former executives who pleaded guilty in the accounting scheme are set for sentencing this summer, and two more indicted in the fraud are awaiting trial in Birmingham, where jurors last week found Mr. Scrushy not guilty.

HealthSouth, meanwhile, is feeding information to prosecutors as it sorts out the aftermath of the financial debacle, and U.S. Attorney Alice Martin said her office still is investigating the long-running fraud at the rehabilitation and medical services chain...

Beam, the company's first finance chief, pleaded guilty to bank fraud in the scheme and was the first of five chief financial officers (CFOs) to take the stand and tie Mr. Scrushy to the fraud. Jurors rejected all of that testimony, telling reporters afterward that all five men had credibility problems. Beam is scheduled to be sentenced July 25 for his role in the fraud. Defense attorney Donald Briskman said Beam fulfilled his part of the plea deal by taking the stand against his former colleague, and he expects prosecutors to honor their end of the bargain by recommending a lighter sentence...

...Beam and Will Hicks, a one-time HealthSouth vice president who also testified against Mr. Scrushy and also is set for sentencing July 25, could receive probation based on the punishment handed down to 10 other HealthSouth executives sentenced so far. Only one was sent to prison, and that term was for only five months...

...The 11th U.S. Circuit Court of Appeals last month ordered a judge to explain his light sentences for two more former HealthSouth workers who pleaded guilty, former CFO Mike Martin and Richard Botts, a vice president, but the court didn't order tougher punishment for the two, who received probation. Still, prosecutors are renewing their request for prison for Martin and Botts.

Meanwhile, former HealthSouth president and director Jim Bennett and Hannibal "Sonny" Crumpler, a division controller, are awaiting trial. Mr. Bennett's attorneys have asked for a date as early as November, and Mr. Crumpler's case is set to begin Sept. 12.

HealthSouth last month agreed to pay $100 million to settle the civil fraud charges filed by the SEC, and in January it reached a $325 million settlement with the Justice Department to resolve issues linked to Medicare billing practices.

Labels: 2006, Health South

Jury Acquits Scrushy in HealthSouth Fraud Trial

Jay Reeves
The Associated Press
June 29, 2005

Jurors acquitted HealthSouth Corp. founder Richard Scrushy on Tuesday of all charges in a surprise setback for federal prosecutors who had scored victories over a string of big-name CEOs accused of fraud.

The case against Scrushy, involving a $2.7 billion earnings overstatement at the rehabilitation and medical services chain he created and ran, had been widely considered among the strongest. He was the first CEO charged under the Sarbanes-Oxley corporate reporting law.

Yet when it finished 21 days of deliberations, the jury decided to acquit Scrushy of all 36 counts of fraud, false corporate reporting and making false statements to regulators.

Labels: 2006, Health South, Peter Henning

On Monday, the US District Court in New York sentenced the 80-year-old Rigas for conspiracy and fraud that eventually drove the nation’s fifth-largest cable provider to bankruptcy. His son and former Chief Financial Officer, Timothy Rigas, was sentenced to 20 years in prison for his role in the case. Judge Leonard Sand ordered both men to be surrendered to prison by September 19...

...In one of the harshest sentences for white-collar crime, prosecutors are sending a clear message to corporate executives that the US government is serious about maintaining the integrity of its financial markets. This case will likely mean a lifetime sentence for the elder Rigas, who, at 80 years of age, is suffering from bladder cancer.

Rigas’ attorneys had asked for leniency during the trial, citing philanthropy, to which Judge Leonard Sand replied, “To be a great philanthropist with other people's money really is not very persuasive.” However, John Rigas’ age was taken into consideration for this sentence, and his prison time may be cut short if his health continues to deteriorate.

"This is a tragedy lacking in heroes," the judge said. Adelphia prosecutors had accused the Rigases of using complicated cash-management systems to spread money around to various family-owned entities and as a cover for stealing about $100 million for themselves.

They were accused of spending the money on a lengthy list of personal luxuries. Prosecutors said John Rigas had ordered two Christmas trees flown to New York for his daughter at a cost of $6,000, ordered up 17 company cars and had the company buy 3,600 acres of timberland at a cost of $26 million to preserve the view outside his Pennsylvania home.

Worse still for investors, the company collapsed into bankruptcy in 2002 after it disclosed a staggering $2.3 billion in off-balance-sheet debt that prosecutors said was deliberately hid by the Rigases.

Labels: 2006, Dennis Kozlowski, Enron, Health South

TYCO INTERNATIONAL LTD. -- Former Chief Executive L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz were convicted Friday on 22 of 23 counts of grand larceny, conspiracy, securities fraud and falsifying business records. Prosecutors accused the two of conspiring to defraud Tyco of millions of dollars to fund extravagant lifestyles. The two executives each face up to 30 years in prison.

HEALTHSOUTH CORP. -- Former CEO Richard Scrushy could spend the rest of his life in prison if convicted on all 36 counts of conspiracy, false reporting, fraud and money laundering for allegedly orchestrating a $2.7 billion earnings overstatement at the rehabilitation and medical services chain for seven years beginning in 1996. A Birmingham, Ala., federal jury has been deliberating in the case since May 19.

WORLDCOM INC. -- Bernard Ebbers, former chief of the one-time telecom giant, was found guilty of fraud, conspiracy and making false regulatory filings in WorldCom's $11 billion accounting scandal. The case against him was largely based on the testimony of former CFO Scott Sullivan, who agreed to testify against his boss as part of a plea deal. Ebbers is due to be sentenced next month and faces up to 85 years in prison.

ENRON CORP. -- Enron founder Kenneth Lay, former CEO Jeffrey Skilling and former top accountant Richard Causey are scheduled to go to trial in January on federal fraud and conspiracy charges. Former CFO Andrew Fastow pleaded guilty in January 2004 to two counts of conspiracy, admitting to orchestrating schemes to hide the company's debt and inflate profits while pocketing millions of dollars. He agreed to serve the maximum 10-year sentence, which will begin in July 2006, after he testifies against his former bosses.

In addition, Fastow's wife will complete a year-long sentence next month on a misdemeanor tax charge for failing to report her husband's kickbacks. Former Enron treasurer Ben Glisan Jr. is serving a five-year sentence for his role in the scandal. And two former Merrill Lynch & Co. executives were sentenced to short prison terms for their roles in a bogus Enron sale of power barges.

ADELPHIA COMMUNICATIONS CORP. -- Founder John Rigas and his son Timothy were convicted in federal court last year of conspiracy, bank fraud and securities fraud. The two are to be sentenced Monday. Another Rigas son, Michael, was acquitted of conspiracy charges before the case ended in a mistrial with jurors deadlocked on 17 counts against him. A fourth executive, Michael Mulcahey, was found not guilty of conspiracy and securities fraud.

CREDIT SUISSE FIRST BOSTON -- The company's former investment banking star, Frank Quattrone, was convicted in May 2004 on federal charges of obstruction of justice, after his first trial ended in a hung jury. Quattrone, who made a fortune taking Internet companies public during the dot-com stock boom, was sentenced to 18 months in prison. He is free on bail and appealing the conviction.

MARTHA STEWART: The founder of the homemaking empire was released March 4 after serving five months in prison, and is serving an additional five months confined to her home. She was convicted in federal court last year of conspiracy, obstruction of justice and making false statements related to a personal sale of ImClone Systems Inc. stock. Her former broker at Merrill Lynch, Peter Bacanovic, began serving a five-month sentence in January, and still faces five months of home confinement. Stewart's conviction was not related to the company she founded, Martha Stewart Living Omnimedia Inc.

Labels: 2006, Andy Fastow, Dennis Kozlowski, Enron, Health South, money laundering, Tyco

HealthSouth countersues Ernst & Young: Company says auditor's inability to discover fraud was a breach of contract, also accuses Scrushy

April 5, 2005: 5:49 PM EDT

NEW YORK (Reuters) - HealthSouth Corp., struggling to overcome a massive accounting fraud scandal, filed a lawsuit against its former outside auditor Ernst & Young, claiming its inability to discover the fraud was a breach of contract and amounted to negligence.

The suit, filed late last week in the circuit court of Jefferson County, Alabama, was a countersuit to one filed last month in which Ernst & Young accused HealthSouth of damaging its reputation and exposing it to lawsuits.

The suit also marked the first time HealthSouth had directly accused its founder and former Chief Executive Richard Scrushy of directing the $2.7 billion accounting fraud from 1996 to 2002.

The suit, which seeks unspecified damages for lost fees, profits and business opportunities, as well as for legal fees and the cost of unraveling the fraud and restating earnings, accuses Ernst and Young of acting "recklessly, wantonly and with gross negligence in performing its duties.

Labels: 2006, Health South

Labels: 2006, Health South