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...and searched Lexis-Nexis database for articles relating to the case. Motions filed by the defense were obtained from the defendant's website. The focus of our analysis is on SOX Section 906 relating to the certification of financial statements by the CEO and CFO and the criminal penalties for certifying false financials. We discuss the SEC's 58 count complaint, (reduced from 85 counts on defense motion), the defense challenge under the "void-for-vagueness doctrine,"(won by the prosecution) and the legal arguments/strategies. We also discuss the implications of the case to the accounting and legal professions. An abiding question in this case is whether the entrepreneurial, risk taking skills necessary to found a company are the same skill set needed to successfully lead the company through public offering and beyond.
INTRODUCTION
The purpose of this paper is to illuminate the accounting, legal and corporate governance issues associated with the first major court test of the Sarbanes-Oxley (SOX) Act of 2002. This is a progress report since the case is in trial at this writing and expected to continue for several months. The defendant in the case is the company's founder and chairman, Richard Scrushy. The company is Healthsouth Corporation. Scrushy has pleaded innocent to all charges. Eighteen Healthsouth executives have been charged in the case; fifteen have pleaded guilty. An abiding question in this case is whether the entrepreneurial, risk taking skills necessary to found a company are the same skill set needed to successfully lead the company through public offering and beyond.
We obtained the Complaint from the SEC website and searched Lexis-Nexis database for articles relating to the case. Motions filed by the defense were obtained from the defendant's website. We discuss the SEC complaint, the defense challenge under the "void-for-vagueness doctrine," and the legal arguments/strategies. We also discuss the implications of the case to the accounting and legal professions.
THE CASE, THE PLAYERS, THE ARGUMENTS
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. HRC's securities are registered with the SEC pursuant to Section 12 (b) of the Exchange Act....
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