HealthSouth co-founder tells Foley MOAA chapter his story of fraud and deceit

Aaron Beam, the co-founder and former Chief Financial Officer of HealthSouth, spoke to over 60 Military Officers Association of America Baldwin County Chapter members at the group’s July luncheon meeting at the Gift Horse Restaurant in Foley. Beam made headlines by admitting that he cooked the books at HealthSouth, the Birmingham, Alabama-based provider of inpatient and outpatient rehabilitation services.
“By 1994 or ’95 we were a Fortune 500 company and the largest company in Alabama. We had 40,000 employees in all 50 states,” said Beam. “ But as we matured, it got more and more difficult to make our numbers. You can’t keep growing at 20% to 30% every year on the bottom line. To keep the Street from lowering its estimates, we started lowering our reserves for bad debts. When we did acquisitions we changed the companies’ value estimates so we could apply those estimates to our earnings as we went forward.
“We committed fraud in the summer of ’96, when we could no longer change estimates to make earnings. We thought we could make a lot of entries small enough that the auditors wouldn’t detect them. So one night, during the second quarter of ’96, I said, ‘OK, let’s do it,’ and we credited revenue that did not exist and we debited assets that did not exist.”
Nine months after cooking the books, Beam left the company, but the fraud continued.
In 2003, after the Securities and Exchange Commission accused HealthSouth of falsely inflating earnings. Beam came forward. He pleaded guilty to bank fraud and gave evidence against his former boss, Richard Scrushy.
“You couldn’t tell Scrushy ‘no’ on anything. I have seen him so mad over minor things that I actually feared for my physical safety. I often joke with people, that if Richard Scrushy and Hannibal Lecter were in a fight, I would bet on Richard Scrushy,” said Beam.
“I felt rotten. It was terrible. My hope was that after we had done it once, we wouldn’t have to do it again. But after doing it for four quarters, I felt like it wasn’t going to end, so that’s when I left. We had dug ourselves into a hole.”
Beam spent three months in a federal prison and will be known as a felon for the rest of his life.
“The correct thing that I should have done at the critical point when we weren’t going to make our numbers was to say no to any illegal actions. If I got fired, I got fired. Once you actually commit fraud and have blood on your hands, getting out of the trap is very difficult,” said Beam.
The four men who succeeded Beam as finance chief also confessed to the $2.7 billion accounting fraud, which took place between 1996 and 2002.
All five CFOs pleaded guilty to criminal charges and testified that HealthSouth co-founder and CEO Scrushy was behind the fraud. But the defense hammered away at their credibility during Scrushy’s 2005 trial, and Scrushy was acquitted of all charges.
Since 2009, Bean has spoken to over 275 groups about corporate fraud and is the author of two books, “HealthSouth: The Wagon to Disaster” and “Ethics Playbook” (co-written with Birmingham writer Greg Womble), in which he shares his personal and professional insights on avoiding what he calls “ethical landmines.”
He said, “I’m trying to turn a big negative into a positive, because there is such a need for ethics in the business world today, and I’m in a unique position to talk about it.” Pictured: MOAA Presi