HomeMy WebLinkAbout20051549.tiff RESOLUTION
RE: ACTION OF THE BOARD PETITION FOR ABATEMENT OR REFUND OF TAXES -
HEALTH SOUTH CORPORATION
WHEREAS, the Board of County Commissioners of Weld County, Colorado, pursuant to
Colorado statute and the Weld County Home Rule Charter, is vested with the authority of
administering the affairs of Weld County, Colorado, and
WHEREAS,the Board of County Commissioners of Weld County, State of Colorado, at a
duly and lawfully called regular meeting held on the 16th day of February, 2005, and continued to
the 23rd day of May, 2005, at which meeting there were present the following members: Chair
William H. Jerke, and Commissioners M. J. Geile, David E. Long, Robert D. Masden, and Glenn
Vaad, and
WHEREAS,notice of such meeting and an opportunity to be present has been given to the
taxpayer and the Assessor of said County, and said Assessor, Stan Sessions, being represented
by Raelene Anderson, and taxpayer Health South Corporation, not being present, and
WHEREAS,the Board of County Commissioners have carefully considered the attached
petition, and are fully advised in relation thereto.
NOW,THEREFORE, BE IT RESOLVED by the Board of County Commissioners of Weld
County,Colorado,that the Board with the recommendation of the assessor and the petition be and
hereby is, denied, and an abatement or refund be allowed as follows:
CORRECTION
TO ASSESSED ABATEMENT TAX
VALUATION OR REFUND YEAR
0.00 0.00 2002
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2005-1549
AS0060
(C : S, /776--/77c- 06 -of - off
TAX ABATEMENT PETITION - HEALTH SOUTH CORPORATION
PAGE 2
The above and foregoing Resolution was,on motion duly made and seconded,adopted by
the following vote on the 23rd day of May, A.D., 2005.
4".` BOARD OF COUNTY COMMISSIONERS
t v I. 4% ta WELD COUNTY, COLORADO
aff
E
ian r a William H. Je , Chair
'a d • . Clerk to the Board
Deputy Clerk to the Board
D 'd E. Long
AP AS T •
Robe D. Masde
ounty Attorney
Glenn Vaad
Date of signature: _ 7L S-
2005-1549
AS0060
PETITION FOR ABATEMENT OR REFUND OF TAXES RECEIVED
/ . , Please submit in duplicate copies and answer all questions.
UJCounty Name QJI Date Received P`Y- ((i) 6
Use Assessors or Commissioners'Date StnI C 2004
WELD COUNTY ASSESSOR
Greeley, Colorado
PETITIONER:Complete Section Ion this side only
Section I: !�(�
Date: q 341 aCID(+
Month Day Year �^ / L'
Petitioner's Name: Hea (14L,SOu G. C o canon. (04-0 r7c —o0)
Petitioner's mailing address: Po 'box 3EO5 b
)WThtvwhaw-t 5.231-OS Wm
`)City or Town r Stale Zip Code
SCHEDULE OR PARCEL NUMBER(S) PROPERTY ADDRESS OR LEGAL DESCRIPTION OF PROPERTY
CR54 !atotio53 VreedW ii4 I St oe4
Petitioner states that the taxes assessed against the above property for property tax year pica, is
incorrect for the following reasons: (Briefly describe the circumstances surrounding the incorrect value or tax.
(The petitioner's estimate of actual value must be Included.) Attach additional sheets if necessary.
Petitioner's estimate of actual value$ 4(0I 133 3 Leta.,
Q
'Sue Year
Petitioner requests an abatement or refund of the appropriate taxes associated with a reduction in value.
I declare,under penalty of perjury in the second degree,that this petition,together with any accompanying exhibits
or statements,has been examined by me,and to the best of my knowledge.information and belief,is true,correct
and Complete.
Daytime Phone Number ADS) q( q -7//c,
Petltle fa Signature
Daytime Phone Number J 11g 25$'- 1.113 a--
.
'Letter of agency must be attached when petition Is submitted.
Every petition for abatement or refund fled pursuant to section 39-10-114,C.R.S.,shall be acted upon pursuant to
the provisions of this section by the board of county commissioners or the assessor,as appropriate,within six
months of the date of filing such petition. 39-1-113(1.7),C.R.S.
Section II: Assessor's Use Only
7002
Tax Year
Assessed Value Tax
Original 197900 $11 .944.52
Corrected 7050 633.64
AbatelRefurd 125850 $11,310.88
2005-1549 'i,
(FOR ASSESSORS AND COUNTY COMMISSIONERS USE ONLY)
RESOLUTION OF COUNTY COMMISSIONERS
Resolution No.
Section I: In accordance with 39-1-113(1.5),C.R.S.,the commissioners of County authorize
the assessor to review petitions for abatement or refund and to settle by written mutual agreement any such
petition for abatement or refund in an amount of one thousand dollars or less per tract,parcel,or lot of land or per
schedule of personal property.
The assessor and petitioner mutually agree to an assessed value and tax abatement/refund of:
Tax Year
Assessed Value Tax
Original
Corrected
Abate/Refund
PLEASE NOTE:THE TOTAL TAX AMOUNT DOES NOT INCLUDE ACCRUED INTEREST,PENALTIES,AND
FEES ASSOCIATED WITH LATE AND/OR DELINQUENT TAX PAYMENTS, IF APPLICABLE. PLEASE
CONTACT YOUR COUNTY TREASURER FOR FULL PAYMENT INFORMATION.
Petitioner's Signature Date
Assessor's or Deputy Assessor's Signature Date
If Section I is not complete and/or if petition is for more than$1,000,Section II must be completed. Submit an
original petition and a copy to the Division of Property Taxation.
..tt • Assessor's recommendation:
••prov-• or Approved in part$
No r r est filed in (If a protest was filed,please attach a copy of NOD.)
Denied for the following reason(s):
A 44/-
Assessor's or Deputy Assessor's Signatur
Section III: WHEREAS,The County Commissioners of County,State of Colorado,at a duly
and lawfully called regular meeting held on / / ,at which meeting there were present the following
mo day yr
members:
with notice of such meeting and an opportunity to be present having been given to the taxpayer and the Assessor
of said County and Assessor (being present/not present)and
Name
petitioner (being present/not present),and WHEREAS,The said
Name
County Commissioners have carefully considered the within petition,and are fully advised in relation thereto,NOW
BE IT RESOLVED,That the Board(agrees/does not agree)with the recommendation of the assessor
and the petition be(approved/denied)and an abatement/refund be(approved/denied)for property tax year
. The taxes to be abated or refunded are$ which represents an assessed value of
Chairperson of the Board of County Commissioners'Signature
I, ,County Clerk and Ex-officio Clerk of the Board of County
Commissioners in and for the aforementioned county,do hereby certify that the above and foregoing order is truly
copied from the record of the proceedings of the Board of County Commissioners.
IN WITNESS WHEREOF,I have hereunto set my hand and affixed the seal of said County
at ,this day of
Time Date Month Year
County Clerk's or Deputy County Clerk's Signature
ACTION OF THE PROPERTY TAX ADMINISTRATOR
Denver,Colorado
Month Day Year
The action of the Board of County Commissioners, relative to the within petition, is hereby
Approved; Approved in part$ ; Denied for the following reason(s):
Secretary's Signature Property Tax Administrator's Signature
G\VSR\.WOATE\FORMREV1-2000
RECEIVED
HEALTHSOUTH Corporation # 040176-00 DEC 2004
Colorado
Tax Year 2002 WELD COUNTY ASSESSOR
Account# P1001296 Greeley, Colorado
AP Summary
Year Cost Factor Value
2001 172,842 90% 155,558
2000 155,861- 80% 124,689
1999 89,917 70% 62,942
1998 114,948 60% 68,969
1997 0 50% 0
1996 0 40% 0
1995 0 30% 0
1994 0 20% 0
1993 0 20% 0
1992 0 20% 0
1991 0 20% 0
1990 0 20% 0
1989 0 20% 0
1988 0 20% 0
Prior 20% 0
533,568 412,157
Cost Value
Total 533,568 412,157
Assessment Rate 29% 119,526
Taxable Value 119,526
Tax Levy (Tax/Assessed Value) 8.9876%
Refund Requested 10,742
ptgONE NINETY ONE PEACHTREE TOWER
191 Peachtree Street NE
Suite 3825
Atlanta,Georgia 30303
rnainfri
ti 3z:nano.
Atlanta RECEIVED
Buffalo
Chicago December 9, 2004 DEC 1 6 2004
Dallas
WELD COUNTY ASSESSOR
Ft.Lauderdale Weld County Treasurer Greeley, Colorado
Honolulu Weld County Property Tax
Los Angeles P.O. Box 458
Greeley, CO 80632-0458
McLean
Minneapolis Re: Acct. #P1001296
Philadelphia HEALTHSOUTH Corporation
Petition for Correction and Refund
Phoenix
Sacramento Dear Sir or Madam:
San Diego
We are filing this letter on behalf of our client HealthSouth Corporation, it's
San Francisco subsidiaries and affiliates. (see attached authorization)
Seattle
Tampa This letter is requesting a certification of change in assessment for the account(s)
listed above for clerical errors that were made as evidenced per the attached
documentation. Colo. Rev. Stat. § 39-10-114 allows for adjustments "two years
after January 1 of the year following the year in which the taxes were levied."
About HEALTHSOUTH
Please see a copy of the enclosed Securities and Exchange Commission complaint
against HEALTHSOUTH Corporation included in Exhibit A paying special
attention to paragraphs 23 through 28 of the complaint. Please note that as part of
a fraudulent scheme, HEALTHSOUTH Corporation inflated income with
matching entries to property, plant and equipment accounts. The most prevalent
fraudulent entry to property, plant and equipment was "AP SUMMARY", and
these entries began showing up in 1998. So,beginning with the 1999 tax year,
business personal property tax renditions began to include fictitious assets. A
review of past renditions beginning with 1999 will clearly document a dramatic
increase in rendered assets. To review the assessments for these facilities previous
to 1999 would show the normal assessment range for these facilities.
HEALTHSOUTH Management, consultants and forensic auditors have been
attempting to uncover all of the fraudulent entries to our property, plant and
equipment accounts since about June of 2003, and as of today, almost all property,
National Practice-Local Expertise-Superior Client Service
plant and equipment account balances for all HEALTHSOUTH related entities
have been restated. However, their auditors, PricewaterhouseCoopers still have
not performed a financial audit,but should have a financial audit completed by 1st
Quarter 2005.
Restated Property, Plant and Equipment
Please refer to Exhibit B. Included with this exhibit is the fixed asset listing for
the referenced taxpayer separating the true assets from those labeled "AP
SUMMARY". These fixed assets has gone through all phases of review and will
be the asset sub-ledger that will be reviewed by their auditors,
PricewaterhouseCoopers.
Part of this review process includes physical inventory counts of depreciable assets
at their medical facilities as of 12/31/2003. American Appraisal Associates, Inc.
conducted physical inventory counts of depreciable assets at their Inpatient
Hospitals and at their Surgery Centers. HEALTHSOUTH personnel and
PricewaterhouseCoopers conducted physical inventories at their smaller outpatient
rehabilitation clinics and diagnostic facilities.
The restatement process for our property, plant and equipment accounts is a long
and thorough process and the asset sub-ledger currently in place are the result of
this time consuming process. We believe this asset sub-ledger is the most accurate
listing of depreciable assets as of 12/31/2003 for the referenced taxpayer.
**********
We welcome your questions and are willing to set up any site facility visits and/or
audits that will need to be performed for this request.
Please feel free to call me at (404) 222-3179 at my office or on my cell phone at
(770) 235-3932.
Sincerely,
Paradigm Group
r �1 cav\ .T � �
Brian T. Scully
Manager
(10
HE4LTHSOUTH RECEIVED
DEC 1 f 2004
LETTER OF AUTHORIZATION MELD COUNTY ASSESSOR
TO: Ad Valorem Tax Authorities and Others To Whom It May Concern Greeley, Colorado
This letter will introduce the accounting firm of KPMG LLP,which is authorized to
represent us concerning Ad Valorem Taxes on personal property for 2003. This
authorization letter will supersede any previous letters of authorization on file.
KPMG LLP is authorized to file real estate returns,to review and receive copies of any
prior tax year's tax returns,to investigate appraisals and assessment,to submit income
•
and expense information,to appal property values and taxes,to receive tax bills,to appear
before administrative boards or agencies,and to prepare to take such actions In our offices
as necessary to effectuate same. KPMG LLP is authorized to act as agent,and/or attorney
in fact,with those aforementioned rights on the property owned or controlled by the
undersigned entity.
The rights, powers,and authorization of KPMG LLP herein granted shall commence upon
the execution of this letter of authorization and shall terminate upon
Syr;saes .3Q zacq .
EV WITNESS WHEREOF:
The undersigned has hereunto set our hands and affixed our seals this the 7 L day of
Cc•roswc ,200 3 .
ACCEPTED:
•
Signed,sealed,and delivered in the
presence of:
Plar/L i gclk,,, S PRINT NAME: Br).*,4 A. AlExIKE
i _ G �,.... - TITLE: 6Rau P Vice rze_Swc,o-74x •
Notary Public:
DATE: Dery see 7, Z 00
TELEPHONE
NUMBER: (205)949-54 YE'
•
One Health-ouM Pamway•9rmuvpaam.Al.35243
205 967.7176
w.twt,eaitsa,tn.can
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FindLaw
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1
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff, )
Civil Action No.
vs. ) CV-03-J-0615-S
)
HEALTHSOUTH CORPORATION )
AND RICHARD M. SCRUSHY, )
)
Defendants. )
)
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF
The Securities and Exchange Commission ("Commission") files this Complaint
for Injunctive and Other Relief as follows:
INTRODUCTION
1. Since 1999, HealthSouth Corp. ("HRC"), one of the nation's largest healthcare
providers, has overstated its earnings by at least $1.4 billion. This massive overstatement
occurred because HRC's founder, Chief Executive Officer and Chairman of the Board,
Richard M. Scrushy ("Scrushy"), insisted that HRC meet or exceed earnings expectations
established by Wall Street analysts. When HRC's earnings fell short of such estimates,
Scrushy directed HRC's accounting personnel to "fix it" by artificially inflating the
company's earnings to match Wall Street expectations. To balance HRC's books, the
false increases in earnings were matched by false increases in HRC's assets. By the third
quarter of 2002, HRC's assets were overstated by at least $800 million, or approximately
10 percent of total assets. HRC's most recent reports filed with the Commission continue
to reflect the fraudulent numbers.
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Y
2. Despite the fact that HRC's financial statements were materially misstated, on
August 14, 2002, Scrushy certified under oath that HRC's 2001 Form 10-K contained
"no untrue statement of a material fact." In truth, the financial statements filed with this
report overstated HRC's earnings, identified on HRC's income statement as "Income
Before Income Taxes And Minority Interests," by at least 4,700%.
3. Defendant HRC has engaged in, and unless restrained and enjoined by this Court,
will continue to engage in, acts and practices which constitute and will constitute
violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §
77q(a)], Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange
Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A) and
78m(b)(2)(B)] and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. §§
240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13].
4. Defendant Scrushy has engaged in, and unless restrained and enjoined by this
Court, will continue to engage in, acts and practices which constitute and will constitute
violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Sections 10(b)
and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78m(b)(5)] and Rules 10b-5
and 13b2-1 thereunder [17 C.F.R. §§ 240.10b-5 and 240.13b2-1], and acts and practices
that aid and abet HRC's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the
Exchange Act [15 U.S.C. §§ 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)] and Rules 12b-20,
13a-1 and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13].
JURDICTION AND VENUE
5. The Commission brings this action pursuant to Sections 20(b), 20(d) and 20(e) of
the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77t(b), 77t(d) and 77t(e)] and
Sections 21(d) and 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") [15
U.S.C. §§ 78u(d) and 78u(e)] to enjoin the defendants from engaging in transactions,
acts, practices and courses of business alleged in this complaint, and transactions, acts,
practices, and courses of business of similar purport and object, for disgorgement of
illegally obtained funds and prejudgment interest, other equitable relief, and for civil
money penalties.
6. This Court has jurisdiction of this action pursuant to Sections 20(b), 20(d), 20(e)
and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), 77t(e) and 77v(a)] and
Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and
78aa].
7. The defendants, directly and indirectly, have made use of the mails, the means
and instruments of transportation and communication in interstate commerce, and the
means and instrumentalities of interstate commerce, in connection with the transactions,
acts, practices and courses of business alleged in this Complaint.
8. Venue lies in this Court pursuant to Section 22(a) of the Securities Act [15 U.S.C.
§ 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa] because defendant
Scrushy resides within this district and HRC's principal place of business lies within this
district.
1
THE DEFENDANTS
9. HealthSouth Corporation ("HRC") was incorporated in Delaware in 1984 and is
headquartered in Birmingham, Alabama. HRC is the nation's largest provider of
outpatient surgery, diagnostic and rehabilitative healthcare services. It owns or operates
over 1,800 different facilities throughout the United States and abroad, including
inpatient and outpatient rehabilitation facilities, outpatient surgery centers, diagnostic
centers, medical centers and other healthcare facilities.
10. The Company's securities are registered with the Commission pursuant to Section
12(b) of the Exchange Act. For the year ended December 31, 2001, HRC reported total
revenues of S4 billion and net income of$76 million. HRC's stock is listed on the New
York Stock Exchange and is actively traded under the symbol of HRC.
11. Richard NI. Scrushy, age 49, founded HRC and has served as its Chairman since
1994. He served as HRC's Chief Executive Officer ("CEO") from 1994 until August 27,
2002. On January 6, 2003, he reassumed the position of HRC's CEO. Shortly after HRC
went public in 1986, Scrushy instructed HRC's senior officers and accounting personnel to
materially inflate HRC's earnings to match Wall Street analysts' expectations.
THE SCHEME TO OVERSTATE EARNINGS
12. Shortly after HRC became publicly traded in 1986, and at Scrushy's instruction, the
company began to artificially inflate its earnings to match Wall Street analysts'
expectations and maintain the market price for HRC's stock. Between 1999 and the second
quarter of 2002, HRC intentionally overstated its earnings, identified as "Income Before
Income Taxes And Minority Interests," by at least $1.4 billion in reports filed with the
Commission.
4
13. The approximate amounts of overstated "Income Before Income Taxes And
Minority Interests" since 1999 in Forms 10-K and 10-Q are as follows:
Income (Loss) before 1999 2000 2001 For six months
Income Taxes and Form 10- Form 10-K Form 10-K ended June 30,
Minority Interests K 2002
(in S millions)
Actual $(191) I $194 $9 $157
Reported 230 f 559 434 340
Misstated Amount 421 365 425 183
Misstated Percentage I 220% 188% 4,722% 119%
14. HRC also overstated earnings, identified as "Income Before Income Taxes And
Minority Interests." in the quarterly reports on Form 10-Q filed with the Commission
during these years.
15. Several of these false reports on Forms 10-Q and 10-K were incorporated by
reference into numerous registration statements on Forms S-4 and S-8 that HRC has filed
with the Commission since 1999. HRC has offered and sold securities pursuant to these
registration statements.
16. Pursuant to the scheme, on a quarterly basis, HRC's senior officers would present
Scrushy with an analysis of HRC's actual, but as yet unreported, earnings for the quarter
as compared to Wall Street's expected earnings for the company.
17. If HRC's actual results fell short of expectations, Scrushy would tell HRC's
management to "fix it" by recording false earnings on HRC's accounting records to make
up the shortfall.
18. HRC's senior accounting personnel then convened a meeting to "fix" the earnings
shortfall. By 1997, the attendees referred to these meetings as "family meetings" and
referred themselves as "family members."
5
19. At these meetings, HRC's senior accounting personnel discussed what false
accounting entries could be made and recorded to inflate reported earnings to match Wall
Street analysts' expectations. These entries primarily consisted of reducing a contra
revenue account, called "contractual adjustment," and/or decreasing expenses, (either of
which increased earnings), and correspondingly increasing assets or decreasing liabilities.
20. The contractual adjustment account is a revenue allowance account that estimates
the difference between the gross amount billed to the patient and the amount that various
healthcare insurers will pay for a specific treatment. HRC deducted this account from gross
revenues to derive net revenues, which were disclosed on HRC's periodic reports filed with
the Commission.
21. The corresponding balance sheet entries were necessary because generally
accepted accounting principles ("GAAP") require any increase in revenue or decrease in
expenses to be matched with either an increase in assets or decrease in liabilities.
22. Beginning no later than 1999. HRC falsified its fixed asset accounts to match the
fictitious adjustments to the income statement.
23. In particular, HRC senior accounting personnel recorded false entries to the fixed
asset books of its numerous facilities. The combined amount of the false entries equaled the
total amount of fictitious increases to the income statement for that quarter.
24. The fictitious fixed asset line item at each facility was listed as "AP Summary." In
its Form 10-Q for the third quarter ended September 30, 2002, HRC's fixed assets, listed
on the balance sheet as "property, plant and equipment," were overstated by approximately
$800 million, or 10 percent of the total assets reported.
6
25. HRC's accounting personnel designed the false journal entries to the income
statement and balance sheet accounts in a manner calculated to avoid detection by the
outside auditors. For example, instead of increasing the revenue account directly, HRC
inflated earnings by decreasing the "contractual adjustment"account. Because the amounts
booked to this account are estimated, there is a limited paper trail and the individual entries
to this account are more difficult to verify than other revenue entries.
26. Additionally, each inflation of earnings and corresponding increase in fixed assets
were recorded through several intermediary journal entries in order to make the false
inflation more difficult to trace.
27. Furthermore, HRC increased the "AP Summary" line item at various facilities by
different amounts because it knew that across the board increases of equal dollar amounts
would raise suspicion.
28. HRC also knew that its outside auditors only questioned additions to fixed assets at
any particular facility if the additions exceeded a certain dollar threshold. Thus, when
artificially increasing the "AP Summary" at a particular facility, HRC was careful not to
exceed the threshold.
29. HRC also created false documents to support its fictitious accounting entries. For
example, during the audit of HRC's 2000 financial statements, the auditors questioned an
addition to fixed assets at one particular HRC facility. HRC accounting personnel,
knowing that this addition was fictitious, altered an existing invoice(that reflected an actual
purchase of an asset at another facility that approximated the dollar amount of the fictitious
addition) to fraudulently indicate that the facility in question had actually purchased that
asset. This altered invoice was then given to the auditors to support the recording of the
fictitious asset in question. Also, w'ten the auditors asked HRC for a fixed assets ledger for
various facilities, HRC accounting personnel would re-generate the fixed asset ledger,
replacing the "AP Summary" line item with the name of a specific fixed asset that did not
exist at the facility, while leaving the dollar amount of the line item unchanged.
30. While the scheme was ongoing. HRC's senior officers and accounting personnel
periodically discussed with Scrushy the burgeoning false financial statements, trying to
persuade him to abandon the scheme. Scrushy insisted that the scheme continue because
he did not want HRC's stock price to suffer. Indeed, in the fall of 1997, when HRC's
accounting personnel advised Scrushy to abandon the earnings manipulation scheme,
Scrushy refused, stating in substance. "not until I sell my stock."
31. Scrushy has personally profited from the scheme to artificially inflate earnings. He
has sold at least 7,782,130 shares of HRC stock since 1999, when HRC's share price was
affected by HRC's artificially inflated earnings.
32. Moreover, according to HRC's 2001 Form 10-K, Scrushy received at least $6.5
million from HRC during 2001 in "Bonus/Annual Incentive Awards." This bonus payment
was based on HRC's artificially inflated earnings.
33. Further, according to HRC's 2001 Form 10-K, from 1999 through 2001, HRC paid
Scrushy $9.2 million in salary. Approximately $5.3 million of this salary was based on
HRC's achievement of certain budget targets. HRC attained these budget targets through
its scheme to artificially inflate earnings.
34. In August 2002, after certain senior HRC officers convinced Scrushy to take steps
to lower Wall Street expectations, Scrushy authorized a scheme to blame a May 2002
Medicare billing guidance, referred to as Transmittal 1753, for reduced future earnings.
R
Transmittal 1753 required certain healthcare providers to bill Medicare at the lower group
therapy rate when treating multiple patients in a single time period, rather than at the
more lucrative individual rate.
35. On August 27, 2002, HRC issued a press release stating that it expected
Transmittal 1753 to reduce its annual earnings by approximately $175 million.
36. This $175 million projection was false and was primarily intended to lower Wall
Su-eet expectations for HRC's earnings. HRC's internal accounting personnel estimated
that Transmittal 1753 would reduce HRC's expected earnings by only $20-30 million
dollars per year on an ongoing basis. Scrushy intended that, by lowering Wall Street
expectations, this press release would reduce the need to artificially inflate earnings in the
future.
37. In mid-2002, certain HRC senior officers and Scrushy discussed the impact of the
scheme to inflate earnings because they were concerned about the consequences of the
August 14, 2002 financial statement certification required under Commission Order No. 4-
460, Order Requiring the Filing of Sworn Statements Pursuant to Section 21(a)(l) of the
Securities Exchange Act of 1934 (June 27, 2002). ("Order 4-460"). Scrushy agreed that,
going forward, he would not insist that earnings be inflated to meet Wall Street analysts'
expectations.
38. Scrushy knew or was reckless in not knowing that HRC's financial statements
materially overstated its operating results. Nevertheless, on August 14, 2002, he and
HRC's Chief Financial Officer certified under oath that HRC's 2001 Form 10-K contained
no `untrue statement of material fact." In truth, the financial statements filed with this
9
report overstated HRC's earnings, identified as "Income Before Income Taxes And
Minority Interests" on HRC's income statement, by at least 4,700%.
CLAIMS FOR RELIEF
COUNT I—FRAUD
Violations of Section 17(a) of the Securities Act 115 U.S.C. & 77q(all
39. Paragraphs 1-38 are hereby realleged and are incorporated herein by reference.
40. Defendants HRC and Scrushy, from at least 1999 through the second quarter of
2002, in connection with the offer or sale of securities, by use of the means and
instruments of transportation and communication in interstate commerce or by use of the
mails.
(a) directly and indirectly employed devices, schemes and artifices to defraud
purchasers of such securities;
(b) directly and indirectly obtained money or property by means of any untrue
statement of a material fact or any omission to state a material fact necessary in order to
make the statements made, not misleading; and
(c) engaged in transactions, practices and a course of business which would have
operated as a fraud or deceit upon the purchasers of such securities, all as more
particularly described in the paragraphs above.
41. Defendants HRC and Scrushy knowingly, intentionally and/or recklessly engaged
in the aforementioned devices, schemes and artifices to defraud. In engaging in such
devices, schemes and artifices to defraud, HRC and Scrushy acted with scienter, that is,with
an intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth.
to
42. By reason of the foregoing, Defendants HRC and Scrushy, directly and indirectly,
have violated, are violating and, unless restrained and enjoined, will continue to violate
§I7(a) of the Securities Act [15 U.S.C. § 77q(a)].
COUNT II—FRAUD
Violations of Section 10(b) of the Exchange Act 115. U.S.C.
4 781(bll and Rule 10b-5 thereunder 117 C.F.R 4 240.10b-51
43. Paragraphs 1 through 42 are hereby realleged and are incorporated herein by
reference.
44. Defendants HRC and Scrushy, from at least 1999 through the second quarter 2002,
in connection with the purchase or sale of securities described herein, by the use of the
means and instrumentalities of interstate commerce and by use of the mails, directly and
indirectly:
a) employed devices, schemes, and artifices to defraud;
b) made untrue statements of material facts and omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under
which they were made, not misleading; and
c) engaged in acts, practices, and courses of business which would and did operate
as a fraud and deceit upon the purchasers of such securities, all as more particularly
described in the paragraphs above.
45. HRC and Scrushy knowingly, intentionally, and/or recklessly engaged in the
aforementioned devices, schemes and artifices to defraud, made untrue statements of
material facts and omitted to state material facts, and engaged in fraudulent acts, practices
and courses of business. In engaging in such conduct, HRC and Scrushy acted with scienter,
11
that is, with an intent to deceive, manipulate or defraud or with a severe reckless disregard
for the truth.
46. By reason of the foregoing, HRC and Scrushy, directly and indirectly, have violated,
are violating and, unless enjoined, will continue to violate Section 10(b) of the Exchange
Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
COUNT III-REPORTING PROVISIONS
HRC Liability for Violating Section 13(a) of the Exchange Act 115 U.S.C. §
78m(a)l and Rules 12b-20 13a-1 and 13a-13 thereunder
[17 C.F.R. $$ 240.12-20. 240.13a-1 and 240.13a-131
47. Paragraphs 1 through 46 are hereby realleged and are incorporated herein by
reference.
48. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require
certain issuers to file with the Commission annual and quarterly reports containing fmancial
statements prepared in conformity with the requirements of the Commission's rules and
regulations. In addition. Rule 12b-20 under the Exchange Act requires that such reports
contain, in addition to disclosures expressly required by statute and rules, such other
information as is necessary to ensure that the statements made in those reports are not,under
the circumstances, materially misleading.
49. HRC violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-
13 thereunder by filing annual and periodic reports with the Commission from at least 1999
through the second quarter of 2002 that materially misstated revenues, expenses, assets and
liabilities.
17
•
COUNT IV-AIDING AND ABETTING REPORTING PROVISIONS
Liability of Scrushy for Aiding and Abetting HRC's Violations of Section
13(a) of the Exchange Act j15 U.S.C. 78m(a)1 and Rules 126-20, 13a-1 and
13a-13 thereunder 117 C.F.R. $$ 240.12-20, 240.13a-1 and 13a-131
50. Paragraphs 1 through 49 are hereby realleged and are incorporated herein by
reference.
51. Scrushy, from at least 1999 through the second quarter of 2002, aided and abetted
HRC's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13
thereunder, which occurred when HRC filed annual and periodic reports that contained
financial statements that were not prepared in conformity with GAAP and contained
material misstatements. Through the conduct described in the above paragraphs, Scrushy
knowingly or recklessly substantially assisted HRC's violations of this section and rules.
COUNT V- BOOKS AND RECORDS AND INTERNAL CONTROLS
VIOLATIONS
HRC's Violations of Sections 13(b)(2)(A) and 13(6)(2)(B)of the Exchange Act
(15 U.S.C. $$ 78m(b)(2)(A) and 78m(b)(2)(B)1
52. Paragraphs 1 through 51 are hereby realleged and are incorporated herein by
reference.
53. Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act require reporting
companies to make and keep accounting records which accurately reflect their
transactions and the dispositions of their assets, to devise and maintain internal controls
sufficient to allow the preparation of financial statements in conformity with GAAP and
to ensure that transactions are executed in accordance with management's general or
specific authorization.
.r:-
54. HRC violated Section 13(b)(2)(A) of the Exchange Act by failing to make and
keep books, records, and accounts, which, in reasonable detail, accurately and fairly
reflected the transactions and dispositions of its assets from at least 1999 through the
second quarter of 2002.
55. HRC violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and
maintain a system of internal accounting controls sufficient to provide reasonable
assurances that: (a) transactions were executed in accordance with management's general
or specific authorization: (b) transactions were recorded as necessary (i) to permit
preparation of financial statements in conformity with generally accepted accounting
principles or any other criteria applicable to such statements, and (ii) to maintain
accountability of assets; (c) access to assets was permitted only in accordance with
management's general or specific authorization; and (d) the recorded accountability for
assets was compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences from at least 1999 through the second
quarter of 2002.
COUNT VI- AIDING AND BETTING BOOKS AND RECORDS AND INTERNAL
CONTROLS VIOLATIONS
Liability of Scrushy for Aiding and Abetting HRC's Violations of Sections
13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act
[15 U.S.C. &S 78m(b)(2)(A) and 78m(b)(2)(B)I
56. Paragraphs 1 through 55 are hereby realleged and are incorporated herein by
reference.
57. Scrushy, from at least 1999 through the second quarter of 2002, aided and abetted
HRC's violations of 13(b)(2)(A) of the Exchange Act, which occurred when HRC failed
to make and keep books, records, and accounts, which, in reasonable detail, accurately
IS
and fairly reflected the transactions and dispositions of HRC's assets. Through the
conduct described in the above paragraphs, Scrushy knowingly or recklessly substantially
assisted HRC's violations of these sections.
58. Scrushy, from at least 1999 through the second quarter of 2002, aided and abetted
HRC's violations of 13(b)(2)(B) of the Exchange Act, which occurred when HRC failed
to devise and maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (a) transactions were executed in accordance with
management's general or specific authorization; (b) transactions were recorded as
necessary (i) to permit preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such statements, and (ii)
to maintain accountability of assets; (c) access to assets was permitted only in accordance
with management's general or specific authorization; and (d) the recorded accountability
for assets was compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. Through the conduct described in the
above paragraphs, Scrushy knowingly or recklessly substantially assisted HRC's violations
of this section.
COUNT VII- BOOKS AND RECORDS AND INTERNAL CONTROLS
VIOLATIONS
Liability of Scrushy for Violating Section 13(b)(5) of the Exchange Act
i15 U.S.C. &&78m(b)(5)1 and Rule 13b2-1 117 C.F.R. & 240.13b2-11 thereunder
59. Paragraphs 1 through 58 are hereby realleged and are incorporated herein by
reference.
60. Section 13(b)(5) of the Exchange Act prohibits any person from knowingly
circumventing or knowingly failing to implement a system of internal accounting
is
controls or knowingly falsifying any book, record, or account required by Section
13(b)(2)(A) of the Exchange Act. Rule 13b2-1 prohibits any person from directly or
indirectly falsifying or causing the falsification of any such books, records or accounts.
Through the conduct described above, Scrushy violated Section 13(b)(5) of the Exchange
Act and Rule 13b2-I.
PRAYER FOR RELIEF
WHEREFORE. Plaintiff Commission, respectfully prays that the Court:
Make findings of fact and conclusions of law in accordance with Rule 52 of the
Federal Rules of Civil Procedure.
II.
Issue a permanent injunction enjoining defendant HRC and its officers, agents,
servants, employees, attorneys, and all persons in active concert or participation with it who
receive actual notice of the order by personal service or otherwise, and each of them:
a. from violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)];
b. from violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule
10b-5 thereunder[17 C.F.R. § 240.10b-5];
c. from violating Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules
12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13];
and
d. from violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act[15 U.S.C.
§§ 78m(b)(2)(A) and 78m(b)(2)(B)].
16
III.
Issue a permanent injunction enjoining defendant Scrushy and his agents, servants,
employees, attorneys, and all persons in active concert or participation with him who receive
actual notice of the order by personal service or otherwise, and each of them:
a. from violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)];
b. from violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule
10b-5 thereunder [17 C.F.R. § 240.10b-5];
c. from violating Section 13(b)(5) of the Exchange Act [15 U.S.C. 78m(b)(5)] and
Rule 13b2-1 thereunder [17 C.F.R. § 240.13b2-1];
d. from aiding and abetting violations of Section 13(a) of the Exchange Act[15 U.S.C.
§ 78m(a)] and Rules 12b-20. 13a-1 and 13a-13 thereunder [17 C.F.R §§ 240.12b-20,
240.13a-1 and 240.13a-13]; and
f. from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the
Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)].
IV.
Issue an Order requiring defendants HRC and Scrushy to disgorge any ill-gotten
gains and losses avoided as a result of the conduct alleged in the Commission's
Complaint, plus pay prejudgment interest thereon.
V.
Issue an Order requiring defendants HRC and Scrushy, pursuant to Section 20(d)
of the Securities Act[15 U.S.C. 77t(d)] and Sections 21(d)(3) and 2IA of the Exchange Act
[15 U.S.C. 78u(d)(3) and 78u-1], to pay civil monetary penalties.
17
VI.
Issue an order requiring HRC to escrow, in an interest-bearing account, all
extraordinary payments (whether compensation or otherwise) to any director, officer,
partner, controlling person, agent, or employee.
VII.
Issue an Order pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)]
and Section 21(d)(2) of the Exchange Act [15 U.S.C.§ 78u(d)(2)] permanently prohibiting
defendant Scrushy from acting as an officer or director of any issuer that has a class of
securities registered with the Commission pursuant to Section 12 of the Exchange Act [15
G.S.C. § 781] or that is required to file reports with the Commission pursuant to Section
15(d) of the Exchange Act [15 U.S.C.§ 78o(d)].
VIII.
Issue an Order freezing the assets of Scrushy and preserving HRC documents, in
order to preserve the status quo.
LX.
Issue an Order that retains jurisdiction over this action in order to implement and
carry out the terms of all orders and decrees that may have been entered or to entertain any
suitable application or motion by the Commission for additional relief within the jurisdiction
of this Court.
X.
Grant such other and further relief as may be necessary and appropriate.
tR
RE SPEC I FULLY SUBMITTED,
William P. Hicks
DISTRICT TRIAL COUNSEL
Ga. Bar No. 351649
NI. Graham Loomis
SENIOR TRIAL COUNSEL
Ga. Bar No. 457868
Alex Rue
SENIOR TRIAL COUNSEL
Ga. Bar No. 618950
Peter J. Diskin
STAFF ATTORNEY
Ga. Bar No. 222705
COUNSEL FOR PLAINTIFF
U. S. SECURITIES AND EXCHANGE CONIVIISSION
3475 Lenox Road,N.E., Suite 1000
Atlanta,Georgia 30326-1234
(404) 842-7600
IQ
". a
CLERK TO THE BOARD
PHONE (970) 336-7215, EXT.4225 ri I I FAX: (970) 352-0242
P.O. BOX 758
' GREELEY, COLORADO 80632
C.
COLORADO
January 27, 2005
HEALTH SOUTH CORPORATION
PO BOX 380546
BIRMINGHAM, AL 35238-0546
RE: SCHEDULE NUMBER 095912104053
Dear Property Owner:
This is to advise you that the Weld County Board of Commissioners will hear your petition for
abatement or refund of taxes on the property described as: 2725 WEST 11TH STREET ROAD,
GREELEY, CO 80631. The meeting is scheduled for February 16, 2005, at 9:00 a.m., in the First
Floor Meeting Room, Weld County Centennial Center, 915 10th Street, Greeley, Colorado.
The Assessor is recommending that the Board approve your petition. You are not required to be
present at this hearing, however, this is your opportunity to have your position heard, especially if
your position is opposed to the Assessor's recommendation. If you intend to submit any
documentation in support of your position for this hearing,all such documentation must be submitted
to the Office of the Clerk to the Board and to the Weld County Assessor's Office at least seven
calendar days prior to the meeting date in order for it to be considered at the scheduled hearing.
If you have any questions concerning this matter, please do not hesitate to contact Carol Harding at
(970) 336-7215, extension 4217.
Sincerely,
Donald D. Warden
Clerk to the Board
By: T` 6+
Deputy Clerk to the Board
cc: Assessor
2005-0534
F14.* ::,
Kit
CLERK TO THE BOARD
PHONE (970) 336-7215, Ext. 4225
FAX: (970) 352-0242
P. O. BOX 758
Co GREELEY, COLORADO 80632
COLORADO
June 1, 2005
Health South Corporation
PO Box 380546
Birmingham, AL 35238-0546
RE: SCHEDULE NUMBER 095912104053
Dear Property Owner:
On May 23, 2005, the Board of Weld County Commissioners considered your petition for
abatement or refund of taxes and denied same.
Pursuant to Section 39-2-125(f), C.R.S., you have the right to appeal this decision to the State
Board of Assessment Appeals within thirty days. You may obtain the appropriate forms and
instructions from the Board of Assessment Appeals, Department of Local Affairs, 1313
Sherman Street, Room 420, Denver, Colorado 80203.
V truly s,
your
Donald D. Warden,
Clerk to the Board
Deputy Clerk to the Board
cc: Assessor
Brian Scully
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