MVBECASE STUDY PRESENTATION

Group members : SYAM PRAKASH, ANI K, SREERANJINI R, GOPIKRISHNAN & SREENATH N

Aaron Beam and the HealthSouth fraudChapter 1

The Intimidator

Richard Scurchy

AARON BEAM

The “LOYAL” one

Case situation

Founded HealthSouth in 1984. CEO – Richard Scruchy , CFO- Aaron Beam

In the beginning to satisfy the investors and also due to the pressure put on Beam, he moved startup costs from “expenses” to “capital investments”.

Beam described this procedure as “aggressive accounting” and “not Fraudulent”.

Even though the company expanded rapidly they continued this practice and both of them made a great deal of money out of it.

In the next ten years the company became a $3 billion Fortune 500 company.

Part way through they realized that for the first time the company ‘s revenue would fall short of Wall Streets analysts expectation by $50 million.

Contd..

To negotiate a new credit agreement of $1.25 billion with vendors, they had to provide them with favorable fin statement . So they decided to “fix” the company records .

More people were added to the fraud practice and when the group grew to 15 people they referred themselves as “the family” .

The company became the market leaders and still the practice continued.

Beam retired in 1997. F.B.I investigation in 2003 Beams successor Weston Smith confessed to the investigators

about the fraud. Investigation revolved around Scruchy alone and he was not found

guilty. Beam and 15 others involved in the fraud were fined and jailed for

seven years. Scruchy ‘s true colors came out after Siegelman bribe case and he

was jailed and fined $2.8 billion .

Q & A

1. Obstacles to Moral behavior Aaron Beam:- Fear and Silence. Pressure to maintain number. He couldn’t stop the practice after the first

time. It was fun being rich and running with the

big shots . He let Scruchy intimidate him. The thought that breaking the rules was for

the better interest of the company.

Richard Scruchy:- The belief that he was right in everything

he did and said. Intimidating Beam The wealth was too much. Did not protected “the family”.

2. Loyal Agents Argument

The loyal agents argument could have been used to defend his actions. Due to the following reasons:

Scruchy ran the company like a “dictator”.

Scruchy intimidated and due to the fear for his employer he did what he was told to.

The Loyal agents argument is not valid though for Beam.

3. place in Moral development

Aaron Beam Stage 1 : Preconventional Stages

Richard Scurchy:Stage 3: Preconventional Stage

4. Moral responsibility

Yes Aaron Beam was morally responsible for Aggressive Accounting because the decision was taken by beam himself even though Scruchy intimidated. His responsibility was mitigated from the beginning itself.