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How HealthSouth started a fraud

Cover image from "HealthSouth: The Wagon to Disaster" by Aaron Beam

TEXT OF INTERVIEW

Steve Chiotakis: HealthSouth co-founder Richard Scrushy was ordered by an Alabama court to pay damages for defrauding the company. Because it's been tough getting any of that $2.8 billion, the company just a couple of weeks ago subpoenaed Scrushy's lawyer, looking for the ways that he paid him. Scrushy's in prison on an unrelated bribery conviction. Scrushy co-founded HealthSouth with Aaron Beam back in the mid 1980's. Beam was Chief Financial Officer until 1997, and he served three months in prison on federal fraud charges. His new book, "Wagon to Disaster," chronicles the fraud, and Aaron Beam is with us this morning. Good morning.

Aaron Beam: Good morning.

Chiotakis: How did it get started?

Beam: Well, we did a lot of what I call aggressive accounting, capitalizing on things that was acceptable by the auditors. We did that from the very beginning, but the out-and-out fraud didn't start until we'd been a public company for about 10 years. And Richard just did not want to disappoint Wall Street by reporting a bad quarter, and he gave us a long speech about how the company was doing good, and if could just get him through this quarter, everything would be OK. And my chief accountant, Bill Owens, actually suggested, you know, making fraudulent entries, and Richard said, "That's fine, if that's what we need to do."

Chiotakis: And he also served time as well, Bill Owens, right?

Beam: He did.

Chiotakis: How did it get reported? I mean for so long, these numbers were made to advertise, as you said, to Wall Street that everything was better at the company. I mean, what took this pyramid of lies down?

Beam: Well, it was actually the law that was enacted because of Enron, and it emphasized that if you were the CFO and you were signing off on financial statements that were fraudulent, you could go to prison for a much longer time. And Weston Smith, who was the CFO at the time, just couldn't take it, and he called the FBI and reported that there was fraud on the books at Healthsouth.

Chiotakis: You started a new business in Baldwin County, Alabama, just outside of Mobile. Is that in Loxley?

Beam: It's in Loxley, and I have a lawn service business. I have no employees, it's just me. But I'm living my life honest now, and there is a lot of peace of mind in that. When I mow somebody's grass, and they pay me $50 in the heat in south Alabama, I know I've earned that money, and I sleep well at night.

Chiotakis: Well Aaron Beam, the founder and former CFO of HealthSouth corporation based in Birmingham, Alabama and now doing some lawn work. And we appreciate you being with us this morning.

Beam: Thank you, Steve.

About the author

Steve Chiotakis was the host of Marketplace Morning Report until January 2012.

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