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2 Top Execs at HealthSouth Put on Leave

March 21, 2003|From Reuters

HealthSouth Corp. said Thursday that it placed Chairman and Chief Executive Richard Scrushy and Chief Financial Officer William Owens on administrative leave after federal authorities accused the company of accounting fraud.

One analyst said filing for bankruptcy may be an option in view of HealthSouth's worries about $345 million in convertible bonds maturing April 1 and a frozen credit line.

"They are at a point where they have limited options. With the bank line frozen, it is going to be very hard to see how they avoid a bankruptcy filing," said SG Cowen analyst Kemp Dolliver, who suspended coverage on the stock.

A banking source also said the company's credit line was frozen.

Standard & Poor's said it lowered HealthSouth's credit rating to CCC-minus, which indicates substantial default risk.

Separately, the Securities and Exchange Commission said it obtained a court order to temporarily freeze "substantially all" of Scrushy's assets.

The company declined to comment.

Joel Gordon, a director since 1996, was named acting chairman, and Robert May, also a director, was named acting chief executive of the largest U.S. provider of outpatient surgery, diagnostic and rehabilitative health-care services.

HealthSouth is facing SEC charges that the company and Scrushy, the company's founder, fraudulently overstated $1.4 billion of earnings and $800 million in assets. The Justice Department said HealthSouth's former chief financial officer pleaded guilty to fraud.

Birmingham, Ala.-based HealthSouth said it is cooperating with the SEC and the Justice Department and formed its own committee to investigate the allegations.

HealthSouth consented to a court order barring it from destroying financial documents, the SEC said.

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