Tears of the Oracle

Transcription

[Informal Talk] I first met Richard Scrushy in the summer of 1980. I was living in Houston Texas and I had recently passed the CPA exam and I wanted to go to work for a large company, a publicly held company; I had always worked for rather small. And I answered an ad in the paper and it was for a controller position at Lifemark Corporation; Lifemark was a publicly held hospital company. And I went in for the interview and it was with Richard Scrushy and I had never met anybody quite like Richard. All during the interview my head was just spinning I just couldn't believe the person that he was and by the end of the interview I was totally convinced that that was the best job I could possibly get in Huston Texas. But as I was driving home I kept thinking about the interview and when I got home I told my wife I said I think today I have met the most brilliant businessman I am ever going to meet or may be the biggest con artist I will ever meet, and that's actually been quoted in the Wall Street Journal and the New York Times and a lot of other publications. But he did, he offered me the job, I reported to work. I got to work, my first day I was there about 30 minutes early and he came into my office and he said Aaron, he said, I am presenting a contract to my boss and I would like you to sit in on my presentation, it's a contract I think we should sign. And I went in, he introduced me to his boss and he said Aaron and I worked on this contract for hours last night and I hadn't worked on anything, I had barely stepped in front door. And today, I realize that he probably told that lie to size me up, to see how I would react to being included in the lie. At that time I didn't think that much about it but I know more about Richard Scrushy now and I am sure that he told that lie on purpose. I worked for Richard for almost four years at Lifemark. We managed departments within hospitals. We would contract with hospital to run their respiratory therapy, physical therapy, and pharmacists and Richard was just amazing. He could go into a little hospital in Arkansas or somewhere and walk in and walk out with three contracts to run big revenue centers in their hospitals and would take a percent of the money. But I also learned that he had a real dark side, he was so into himself and I remember many times sitting in his office and he would be ranting and raving about a problem he was having with his ex-wife or his boss and it was always about Richard, never about me, always about him. In the summer of 1983, I picked up the Wall Street Journal a morning, read and it said Lifemark to be acquired by AMI, a much larger hospital company out of California. And the article said they would be closing the offices of Lifemark and I thought oh no man, I am going to be without a job. But what happens many times, these were two New York stock exchange companies and a lot of times when they merge, a venture capitalist will approach, the company's being bought out and Lifemark was clearly being bought out and Citicorp Venture Capital contacted Bill Mackey, the chairman of the board, and asked him, does anybody have an idea for a startup company that they could back and Bill Mackey said Richard Scrushy without a doubt. So we made him a full VP when he was only 26 years old and he's been talking to us about getting into the outpatient business. Back in the early 80s if you had an accident or you needed physical therapy after a surgery, the physician would just keep you in the hospital as an in- patient and you would receive your therapy as an in-patient. Even back then the cost of health care was a big concern. Richard's concept was get the patient out of the hospital as fast as you can, or certainly eliminate the room and board portion of the hospital bill and the patient would rather go home and go back as an outpatient rather than staying in a building full of sick people and he felt like the therapist would rather work in that kind of environment rather than in the hospital itself. In a hospital, the doctors and the nurses are kind of the big dudes, the therapy departments are kind of off in the basement somewhere and don't get that much recognition and Richard felt like if you put them in their own freestanding outpatient center they will like working there better. He convinced Citicorp to put a million dollars into his startup company and he wanted me to be his CFO to help build a company that hopefully one day would go public. But I didn't want to, I had had about enough of Richard. He just glares down on you and he manages by intimidation and I really kind of wanted to get away from him even at that point. But he said look Aaron, he said put in $5,000 you would get a 100,000 shares of stock, nickel a share. He said I am putting in $25,000 I am going to get 500,000 shares and you have got to realize Citicorp is paying a dollar a share for their million shares so today your nickel is already worth a dollar. And I didn't have a job, I was going to be laid off and I believed Richard could do it, I was impressed that he got Citicorp to put a million dollar in him, and it was almost on the back of an envelope, they had already cut the deal, no formal business plan or anything. And I felt like he really could run a big company and take it public so I said okay I am in. Richard was from Alabama. He was born and raised in Selma Alabama so he wanted to start the company up in Birmingham. And we moved to Birmingham and we opened our first outpatient center, and it looked more like a fitness center or a spa or something and that was part of our concept was to make it non-medical as much as possible so that the patient feels like they are going to a spa or something rather than getting medical treatment. We opened our first center and it started seeing patients right away, we charged less than the acute care hospitals and we were off and running. And we raised additional venture capital, opened more centers. I came in one morning, there were probably only maybe 15 people in the corporate office and Richard had drawn this stick figure image up here and he said look, these guys are pulling the wagon, he said a lot of you aren' t really hooked up, some of you are riding in the wagon, this guy is pulling the wagon backwards, this guy is just kind of fat and dumb sitting on the sidelines and he says I need you to all pull the wagon. And he left that drawing up and it became kind of a company motto, to pull the wagon. And he had it reproduced and as years went by, it was famed and it was in the lobby of every HealthSouth facility next to a picture of Richard Scrushy. And at the end of the year if you were an outstanding employee, you got 100 shares of stock and a little red wagon and it was called Pulling The Wagon Award. We discovered as we started to open these outpatients centers that there was a need for rehabilitation hospitals, specialty hospitals where you don't go for surgery, you don't go there if you are sick, you go there if you are really hurt or you have had a bad stroke and you still need nursing care so you are in-patient in a hospital but a rehab hospital. We also discovered that outpatient surgery was becoming a big business. Years ago a physician would not cut on you if you were not in an acute care hospital. But as you are probably aware, things have changed, technology has changed and a large percentage of all surgeries now are done on outpatient basis, and we got into that business. So we really had three basic businesses rehab, outpatient centers, hospitals and then outpatient surgery. We started the company in 1984 and by 1986 we were talking to investment bankers about going public. And I remember very well we were meeting with the bankers from Drexel Burnham; you may not know and the older people in the room would know about Drexel Burnham. But we were meeting with the banker and we were discussing our numbers and everything and he said look, you almost have a lot of startup calls so he said, how are you handling your startup calls? And I said well I am expensing it, very conservative accounting, just writing it off as we incurred it. And he looked at Richard and I and he almost had a twinkle in his eye and he said oh no, he said you should be capitalizing those calls. He said, I think I can get you public just as soon as you show a profit because you have a great concept but he said you ought to be capitalizing those expenses and get profitable quickly and we will take you public. And Richard looked at me and he said Aaron, why are you letting their accounting tail wag the dog, he says your blankety blank conservative accounting is holding us back and he said you should be doing this. He said, I can't believe you are hurting me, I am trying to get this company public and your conservative accounting is holding us back. And that's kind of how Richard managed; if he could get you down, he would really beat on you so to speak. So I re-stated our numbers, redid our projections and sure enough in the second quarter of 1986 we made a profit and the banker said let's go. So we went on a road show, we went to New York, Boston, Chicago, San Francisco, LA all of the big institutional buyers in these cities and we had our road show and we presented the stock to investors. The last road show was typically in New York City. The night before you priced the stock or the day before at luncheon, Richard made this just outstanding presentation and at the end of this presentation he got a standing ovation, and the guy sitting next to him, he said I have never seen anything like this. He said, normally people don't applaud to these types of presentations and he says, all my years on Wall Street I have never seen anyone get a standing ovation. And he said, you guys should not be going public, your company is only two years old, you top-line [inaudible] is only $5 million, you and Richard have no experience running a public company, there are no other companies quite like you out there so the analysts are going to have trouble writing research on you. But he said, clearly you are going to go public, Richard is such a salesman he will pull it off. Sure enough, we were priced to go out at $8 to $10 a share and the deal got done at 650, we barely made it, it was almost a pull at the last minute. But we got public, began trading and it was very exciting. I was calling my broker every 15 minutes to see how the stock was doing and within a few months we were a $10 stock. You can do the arithmetic I had a 100,000 shares, I am now a millionaire. And the money changed me. As the years went by, I bought a condo in the French Quarter, I bought a beach house in Florida. Over the years I bought $30,000 worth of these Hermes Neckties, they are really good looking neckties I have to admit, but I went kind of crazy on that. And it certainly changed Richard; Richard's ego now was on steroids. He formed a rock and roll band called Proxy and he began playing at company functions and even at music festivals and nightclubs and he wanted to become a rock star. And the band didn't do that well so he formed a country band and he went to Nashville and he hired musicians to back him and he actually wrote a song he called Honk If You Love the Honky Tonk. And he sent memos out to all of our employees asking them to call the radio stations and recommend his song be played, and he was just unbelievable. He also started always carrying a gun in his briefcase and he hired bodyguards that followed him everywhere and even if he went to Wal-Mart or whatever, his bodyguards would be behind him speaking into their sleeves and he almost became kind of a Hannibal Lecter type kind of person. He didn't look little bit like Hannibal Lecter but it was just amazing what the money did to him. In spite of this though, he was the darling of Wall Street. He had started an entire niche in health care and everybody wanted him on their board of directors, venture capitalists brought him other deals to invest in, he just absolutely was a darling of Wall Street. And he became very wealthy. He controlled the board of directors so when I got 10000 options he got a million that kind of a thing. In 1995 less than 10 years after starting the company I estimated from his publicly owned stock in HealthSouth and other companies he was worth $600 million. And he told the Birmingham News newspaper that he wanted to be a billionaire and he was well on his way. That was his goal to be as rich as he could be, to be a billionaire. HealthSouth did very well, we did lots of public offerings, about six companies went public in the same business we were in and we began buying up our competitors. We did pooling of interest, we would buy their stock with our stock and by 1995, we were the largest company in Alabama, State of Alabama, we were operating in all 50 states, we had 50,000 employees, we were a Fortune 500 Company and I was a rock- star in Birmingham. I could go into any restaurant and people would point at me, want to talk to me, it was just amazing. And it was quite the lifestyle. We started buying jet airplanes, we had two Gulfstream airplanes which were about $30 million airplanes. Many mornings, Richard and I would go to our hanger, get on our Gulfstream to whatever stirred us, cook us breakfast as we flew in Teterboro Airport, New Jersey. We would get off the airplane, there would be a helicopter waiting for us, we would get on the helicopter, fly into Manhattan, there would be a limo waiting for us. We would go to the Plaza Hotel where Charlie Sheen hangs out and make presentations to investors and then fly back home that night, never going through Atlanta or anything. It was really quite the lifestyle. Richard's obsession with being wealthy was unbelievable and he was the one that really talked to the analysts and investment bankers about what kind of earnings we could achieve. And he understood that his wealth was tied to Wall Street. And he would ask the analysts what do we need to do for you ought to keep a strong buy on the stock and they would tell him, you need to grow 30% whatever and he said we can do that. Everything was okay for the first 7, 8, 9 years, we would hit those what he can promised to the Street. But it got difficult. We were a big company now, there weren't as many growth opportunities and just compound growth of 20%-30% is difficult to achieve year after year after year. So we started doing some not-so-good accounting. In health care the biggest issue, the trick is revenue recognition which it is in many businesses. You have contracts with HMOs, Medicare, private companies, you have lot of bad debt so what you charge the patient and what you eventually collect are very different. So you have to make adjustments to that revenue to come up with a net receivable number that's a good number. As it became difficult to make our numbers maybe we mistreat estimates by a penny, we would say now maybe bad debts aren't 10% of revenue they are going to be 8% and we would change our basis for the accounting for bad debts. Not fraud but certainly not good accounting. For those of you who are accounting majors you understand you don't change your underlying accounting principles to achieve a number, you change those principles when it really dictates the circumstances that say you should. But we did it to make our numbers. Everything was fine until 1996, 10 years of being a public company. And we had completed our second quarter and we had missed our numbers really badly and the Street was picking up that our days [inaudible] were growing, our cash flow didn't seem to be what it should be and Bill Owens who was my chief accountant now just felt like we could not play with the reserves anymore, it would be too transparent and it was time to report a bad quarter. We went into Richard's office and we showed him the numbers and we told him and he said no, have you guys lost your minds, he said we can't do that, he said the analysts are going to put sales on the stock, it's going to crash, we are going to be sued by stockholders, your stock options are going to be worthless, you are not going to be the rock stars in Birmingham anymore. He said we can't do that. And he said look, and he is a cold bloke, he put on his salesman hat and he said now look, health care is the biggest business in the United States, we are a small part of it. He said, we can get into the acute care hospital business and become if not the largest one of the largest companies in the country but he said I can't do it if you all screw this up by reporting these bad numbers. And he said you have all done things to the numbers before you know capitalizing calls, changing estimates, he said there's got to be something you can do to get us past this little bump in the road. And Bill Owens who was my chief accountant who had worked for auditors said Richard, he said look, we have 1500 general ledgers, he said I can make entries small enough that the auditors won't look at them, and he was very clear he said, I will be crediting revenue that don't exist and debiting assets that don't exist. I was intimidated by Richard, I am ashamed to admit it but I did not have the courage to stand up to him at that point. I knew he had a gun in his briefcase, I had seen him get so angry about small things that I could not think of causing his net worth to go down by several hundred million dollars. And I believed in the company, we were a good company, and I wanted a part of it to keep going on and I will be honest with you I did not want to report bad numbers either. So that night Bill Owens cooked the books. I told my wife about it when I went home and she told me how stupid I was and that night of course I couldn't sleep. I woke up the next day and I felt like I had to put a genie back in the bottle and of course I couldn't and that point in my life changed and I was now living a lie, we had cooked the books. The next quarters rolls around and we do it again, not quite as difficult the second time. 1996 ends, I lie to the auditors when they ask sort of standard questions about, have any interest been made or not made that should have been made and sure enough, we got it by the auditors and it wasn't discovered. 1997 begins and we plead with Richard to lower Street expectations and he had no part it. He knew that once you are a high PE, high growth company, once you tell the Street you are not going to keep growing, they will put sales or lease holds on the stock rather than strong buys. So we began 1997 and it was apparent to me that we were going to have another year of cooking the books because we were in a hole, we had to get out of the hole and then grow unrealistically. During this period of time I think it was early 1997, Richard told Bill Owens and I, he said if we are ever caught, I will deny everything. You guys do what you want but I am telling you I am going to deny everything. Well my life is an utter mess. I am beginning to drink more than I should, I hate my job, I hate going to work everyday and I felt trapped and I didn't want to be a whistleblower. With Richard making that statement, I knew he would bring more lawyers, guns and money to the party than I would, I didn't want to stay because it was not fun anymore, it was all a lie. So I went to Richard and I told him I wanted to retire and I was only 54 years old and he said, if that's what you want to do, he said I think you are making a mistake but if that's what you want to do, and we never talked about the fraud and Richard is very smart, you don't have to spell things out to him. So I left the company in 1997 and I moved to South Alabama Coast and about as soon as I was not an insider anymore, I sold lot of my stock and I bought 25 acres of land and I built a very nice house and for some reason I built a football field in my backyard and to this day I don't know of anyone else that built, I mean had a goalpost and everything. And I just distanced myself from the company I just put it out of my mind. But one day about a year after I retired Richard called me and said come to Birmingham, have lunch with me. So I went to Birmingham and went into the dining room of the corporate offices and he said look Aaron, I need you to come back to work. He said that we are making our numbers fine now, he said everything is okay, you need to come back and help me grow the company. And I told him no, I really did not want to get back into the frying pan and I was having lot of fun with my dogs and my football field. So I went back and 1998 passes 1999, 2000, 2001, 2002 but in the spring of 2003 I am watching the evening news and they open up with we have a breaking story out of Birmingham Alabama, massive accounting fraud uncovered at HealthSouth, billions of bogus entries have been made to the books and I was like God. When I first retired, every time my doorbell rang or my phone rang, I thought it was FBI but it had been 6 years and I wanted to believe the fraud had stopped. So I am sure I wasn't as surprised as the average guy on the street but I was amazed that the fraud had gone on all those years. Alice Martin who was the attorney with the federal government out of the Northern District of Alabama in the newspaper the next day said several people have come forward, admitted their involvement in the fraud but there are others that are involved and if you are one of those people, you need to come forward and I almost thought she was going to name me by name in paper. But my wife tried to console me and say look, you have been gone a long time and the fraud wasn't that big when you were there, they are not going to come after you, and I said I don't think so. So I contacted an attorney, a white collar criminal attorney and he knew Alice Martin's people, he made some phone calls and he called me back and he said oh yeah, Mr. Beam you need to come talk to me. So my wife and I went in and the first thing he said, he says do not lie to me and do not lie to the federal government. He says your former employees have told them you were involved, the FBI is all over that building, and if you lie, they are going to come down on you like a freight train, you need to tell the truth. By now my wife is in tears, I am almost in tears and I have a kind of funny sense of humor, I asked him if he needed a check or something and he said yes, I would like for you to write me a check for $100,000. I said you got to be kidding. He said no, Mr. Beam, I am not kidding, he said that won't be the last check you are going to have to write. And I asked him if I could get a t-shirt or something and he gave me a coffee mug and my wife and I refer to it as a $100,000 coffee mug. Three days later I am in a federal building in Birmingham Alabama and I am sitting across the table from two FBI agents, two agents from the SEC, several attorneys from Alice Martin's office and I wasn't scared but it is not fun to be interrogated by the FBI and the SEC. And I felt like I didn' t do a good job because they wanted to know in 1996 when you first cooked the books what did you say to Richard, what did he say to you and they were recording all this and I couldn' t remember, I couldn't remember details. But at the end of the day, it lasted all day, FBI agent said Mr. Beam he said we know a lot about this case and from what we know we believe you were very truthful today and he said we appreciate that. Alice Martin's people said 17 people have come forward admitted their involvement in the fraud only one key person denies it, Richard Scrushy, he says he knows nothing about it and we are going to have take Mr. Scrushy to trial and we will like for you to be a witness. And they explained that they weren't cutting me a deal that it wasn't like rat Richard up and you don't go to prison, all we can tell you that if you cooperate, we recommend our senate, to a federal judge, we will ask him to take that into consideration. This is the spring of 2002 the trial didn't began until '05 in January. So I had a two year period where my life was literally very, very miserable. I knew I could possibly go to prison for north of 20 years basically rest of my life. And my attorney explained to me that they are going to look at your personal balance sheet and because of the magnitude of the fraud, they can fine you whatever they want to fine you. And they are not going to put in a box underneath a freeway but you are not going to have a football field and a million dollar home and a home in Florida and all that, you are going to have to sell that in order to pay the government. So like I say it was very, very dark period of time. During this period of time, Richard Scrushy went on the offensive. He left the church that he belonged to and he joined an intercity church and he gave that church a million dollars. He also bought a television station in Birmingham and he and his wife every morning Monday through Friday preached the gospel on TV and he was a preacher. He spent $20 million on his lawyers. He hired a jury selection firm, he had a publicist and all during the trial everyday he always had a Bible in his hand, he and his wife and he was surrounded by ministers. I thought it was laughable, it was so obvious what he was trying to do I just didn't think it would work. The government wanted me to be the first witness, there were four CFOs after I left all promoted up in the company, and they wanted me to be the first because they thought I was very professor-like, I guess it was the beard I don't know and that I could explain to the jury what street estimates were, what are earnings for share, what's the balance sheet, what's an income statement. And sure enough they put me on the stand and they had charts and it goes on almost all day and the jury is falling asleep. I am trying to make eye contact and they don't get it, they are bored, they don't understand it, they literally were falling asleep. I could have been teaching rocket science or brain surgery, they would pick up on it just as well what I was doing. Now this is big time courtroom drama. This was the first Sarbanes-Oxley case tried in the United States and it was a big deal. And you don't want to be involved in something like this if you don' t have to. Very first thing the lawyer gets in my face, he says Mr. Beam, you have had an extramarital affair, haven't you, and I said yes, because I had. The next day the Birmingham News, the newspaper said what a clever attorney he was to get me to admit to this. And the next day my wife wanted to come to the courtroom holding our son saying she still loved me and we have been married 40 years now and I have since discovered that he was on his fourth wife and the fourth wife is very much a trophy [inaudible]. He then gets in my face, he says Mr. Beam when you went to New York City and presented to investors, you lied, didn't you, when you presented the numbers to the board of directors you lied, Mr. Beam you lie so much, you don't know when you are telling the truth, you are a cheat and a liar. The jurors' eyes were this big, they were awake, they were having fun, this was entertainment to have this lawyer scream at me and call me a liar. The trial went on for six months, the jury deliberated for about 6 weeks, not guilty all charges. The legal community throughout the United States could not believe it. Enron, WorldCom, Tyco, Martha Stewart, they all went to prison but not Richard Scrushy. Within a couple of weeks he flew to Houston Texas to coach Ken Lay on how to conduct his trial at Enron, it was unbelievable. They asked the jury, some of the ones that were willing to talk, they asked them how did you find Mr. Scrushy not guilty when 17 people, 5 CFOs all said he was at the center of the fraud? And some of them said well it seemed like those CFOs were liars and Mr. Scrushy seemed like a nice Christian man. I cried like a baby when the verdict went out, I just could not believe that he had pulled it off. Three months later I was sent to a federal person and I got only three months and I don't understand why I got such a light sentence but I [inaudible] and I did not volunteer to do more time. I don't know if any of you all have been to prison but if you got to go to prison, you want to go to a federal minimum security prison. It's not that bad. My wife drove me there, I reported, it was on an air force base and you are not locked up per se and they actually tell you if you want to leave you can but they say when the marshals, US marshals catch you, you are going to big boy prison, and I didn't want to go to big boy prison so. Interesting place, prisons like this were initially set up I think for white collar criminals. And there were a lot of lawyers and accountants. There was, two beds down from me where we slept there was a thoracic surgeon that had cheated the Medicare problem. The most interesting guy I met while I was there was the father of the young man that just married Chelsea Clinton. He was a politician and he was in for seven years for I think embezzling the campaign funds or something, a nice guy, very interesting. About half of the prison thought was drug dealers. If you are not a non violent drug dealer and you get less than 10 years you can go to this kind of person. So, it was kind of a 50-50 white collar and drug dealers. I was there during football season and I am a big LSU fan and did I tell you, I think we were going to pay a ball game. One night LSU was playing and it was on TV and there is a television set in the lobby where you are housed and up until 10 o'clock at night you can watch television. So I went in to watch the game and there were a bunch of drug dealers and there they were watching the Miami Hurricane. And they called me pops, they said no pops, you are not watching your tigers, we are going to watch our [inaudible]. And I was depressed. I went around every barrack trying to find a TV which you are not supposed to do to watch the game and all the drug dealers had [inaudible]. The season ends, LSU gets an invitation to go to the Peach Bowl in Atlanta, Georgia, to play the Miami Hurricanes. So I said oh boy, I m going to get to see this game. The night before the game three of these guys came to me and they are biggest football players because they are in and out of prison and they lift weights and they are huge, and they ask me for my shoelaces, and I said why. They said so you won't hang yourself when Miami kicks LSU's ass tomorrow. So the game begins. It's me and 30 drug dealers from Miami and LSU wins 40 to 3 and it was absolutely the most fun you can possibly can while you are in prison. The worst thing about it there was nobody there with violence in their background. So the first night I took a shower I looked over my shoulder and nothing happened. But the worst part was the food. I happened to read the book Fast Food Nation while I was in there and it talked about how the very worst grade of all food goes to prisons. And after being there about a week I got the right to call my wife and I called her and I told her, I was telling her how bad the food was and she said Aaron, you are in prison. So I didn't complain about the food anymore. I got out in February and I am now a felon. Do you know what the job market is like for felons? It's not good. You can imagine in today's job market if there is a good job opening there's got to be 30, 40, 50 people that qualify for applying. What chance does a felon have? So I needed a job and my fines and my legal bills were well in excess of a million dollars and I had to auction off my property and I needed a job. My wife had gone back to work. I had always liked gardening and working outdoors. And I went back to school and I got a two year certificate in turf management and for the past two years I have been making a living mowing lawns. It's not that bad except the heat in South Alabama during summer is just terrible. But when I was at HealthSouth and my salary was $500,000, I really didn't feel like I was earning that money, there were 50,000 employees out there making that money for me. But today when I mow lawns and I cut somebody's grass and I get maybe $40 or $50 in South Alabama heat, I feel like I have really earned that money. I do sleep better now than I ever did when I was at HealthSouth. My wife is so smart she said Aaron, why don't you call the dean of the business school, over the years I have given them a lot of money, and see if you could talk to the MBA students about what has happened to you. And I do like talking so I called the dean and the dean said yeah, I think that would be a good idea. So, I went to talk to the MBA students, they had a special session for me and it went very well. I really felt like I had done something right. But I didn't think about doing speaking as a living, doing it for a living. Enron, WorldCom, Tyco, HealthSouth it all faded into the woodwork and they weren't front page news anymore. But something happened, you all might have heard about the Subprime Debacle. We learned that millions of loans were made to people, mortgage companies coached people how to lie on their loan applications to be able to buy a home they really couldn't afford. Wall Street took those loans, packaged to them, got them rated very highly, standard [inaudible] and they told the investing public these were good securities. On the other side of the house their hedge funds were short in these securities. The real estate bubble burst and all of a sudden, I mean just almost overnight, you have lived it, the largest insurance companies, the largest banks, the largest investment banking firms are all broke and they are asking for bailout and we are in the great recession. Why? At the heart of it is greed and unethical business behavior. HealthSouth was bad but this was massive so massive that it put the whole world into a recession, the great recession. When Webster first published its dictionary, he defined success as being generous, prosperous, healthy and kind. Today, that definition is the attainment of wealth, fame and rank. Having a bigger house and more cars than your neighbor and you are up to here in debt is not being successful particularly if you accumulate that wealth by doing unethical business things. So I have been speaking to colleges and companies and associations, fraud associations and accounting groups about ethics. And you might say and I am sure you have said this, you can't teach ethic, you are either ethical or you are not. I don't believe it's just black or white, I believe it's like the pilot that landed that plane on the Hudson River. He studied every crash, every water landing and he knew in those critical moments exactly what to do and how to bring that plane in and save those people's lives. I think today if we teach ethics at high schools, colleges, on the job, you will be better prepared to deal with the kind of things I had to deal with and trust me, you will when you get out into the business world, you will face things like I faced maybe not as big but you will be asked to keep sales open a little longer [inaudible] maybe cut payables off a little early to help the bottom line. I think the image of the accountant with a green visor in the backroom is for a large part true. The card charging people are in sales, they are in marketing, they are out front they like confrontation. Accountants like to kind of be in the background and please people by keeping a nice set of books, and that hurts you. The largest turnover of executives in the United States is CFOs. CFO of public companies only last 31/2 years and part of it is because they are constantly asked to make the numbers what they need to be and it's really, really a big problem and you need to be aware of that. When you go to work for a company and you figure out you have got a sociopath at the top [inaudible] and the tone of the top is all wrong, you need to leave that company and go to another company. There is a professor at Arizona State University Dr. Marianne Jennings and she is probably one of the outstanding ethics professors in United States and she has written a book called the Seven Signs of Ethical Collapse and the book is about Enron, WorldCom, Tyco and HealthSouth. And she talks about the seven things to look for in a company before it has a complete ethical meltdown. The first sign is the pressure to maintain the numbers, make the numbers, and at HealthSouth that was our whole focus make the numbers no matter what, make the numbers. But if the culture is such that it's make the numbers with no regard for doing it ethically, doing it correctly, that's the first sign. The second sign is fear and silence. Richard managed by intimidation and most people don't want to tell their boss, they are afraid they will lose their job so there is a culture of fear and silence in these companies. You might think my whole speech today is bashing of Richard Scrushy which you have got to realize that when you have an Enron or WorldCom or HealthSouth, the guy at the top, the CEO is probably a bigger than life personality who hires young people or people that he can control and manage and intimidate and get them to do what he wants. The fourth sign is weak board of directors and this is probably the most important, certainly back in the HealthSouth era. Dr. Jennings said that HealthSouth had the weakest board of directors she had ever seen. Just absolutely any time Richard put somebody on the board and they gave him any trouble he just got rid of them. So over the years he just developed a board of yes men. The board at WorldCom was referred to as Bernie's Boys, Bernie Ebbers was the chairman of the board and these were the boys. Conflict, Richard made sure we all had stock options, we were given loans to exercise our stock options, we did business with our board members. We bought $8 million worth of glass from a guy to go into our hospitals who was on the board. So Richard set us up to be conflicted so we would stay true to the calls. Innovation like no other; I would challenge anybody in this room to explain to us what Enron really did, nobody understood Enron's business, they had this unique business. The unique thing like no other thing at HealthSouth was our earnings. For 10 years, we were perfectly straight no bumps at all. People sometime look hard at companies when they are doing badly but all of these companies Enron, HealthSouth, they were high flying companies apparently doing very well, too well. The last sign is goodness in some areas atones for evil in other areas. It's kind of an interesting sign but it's there in many cases. HealthSouth gave lots of money to churches and schools and everything. There were many, many things throughout the State of Alabama with Richard Scrushy's name on it, it was HealthSouth money but he made sure he gave money to these causes and he was recognized as this very generous person. One last Richard Scrushy story because it's the best one, Richard has had three wives and nine children and his third wife was a graduate of Troy University in South Alabama. And they wanted to get into division one football and they needed to sell x number of season tickets and they needed to enlarge their stadium. So HealthSouth bought the tickets and gave them the money to enlarge the stadium and sure enough it became the Richard M. Scrushy stadium. But he also required that the band play his song, Honk if you Like the Honky Tonk, unbelievable. I have written a book called HealthSouth: The Wagon to Disaster and you might say oh look at Aaron Beam, he is up here preaching to us about ethics and he is trying to get rich off of a book he wrote. I don't know how many of you have written a book. You might have doctor but the chances of you writing a book and you becoming wealthy from it is about as likely as you being struck by lightening while you are on your honeymoon with Cindy Crawford, this is not going to happen. My speech is a condensed version of the book and that's the reason I wrote the book. I hope universities will have students read it so that they can understand how this all evolved, how I got on the slippery slope and how I made the terrible decisions that I did. Today, I am a felon, that's all I am ever going to be remembered as. I am not going to be remembered as a guy that started one of the largest health care companies, involved in the largest companies in Alabama, I am going to be known as a guy that cooked the books of HealthSouth. You do not want to go there. All the unethical behavior is very corrosive, it's like metal rusting. One day it rusts more and more and more and the bridge falls down and people die. If you let yourself compromise your ethnical principles, it will lead to a very bad ending and that's the message I want to bring today. At this point I would like to throw it open to questions. Does anybody have any question? [Audience] He is in prison, believe it or not. This was his mug shot when he went to prison. After the government lost the case of HealthSouth he was indicted for bribing the Governor of Alabama. The governor was running for reelection while he was at HealthSouth and he gave the governor or HealthSouth gave the governor $500,000 for his campaign funds. Richard got appointed to a board, a CON Certificate of Need board, a public state position and the federal government said this was a bribe. The legal community said this is silly, people give politicians money all the time and it's seldom ever considered a bribe, it is just not. Well Richard fired up his TV show, he got the bibles back out, got the ministers in the courtroom and he was found guilty. He is in a prison is Beaumont Texas now and he has been there for 3 years and he is doing seven years. I think he got one year knocked off. They have asked him what is he going to do when he gets out and he said he is going to continue preaching and he is going to write and sing Christian music so you all get in line for that album when it comes out. I have had no contact with him, don't want to. I hope he lives by the rules you can't own a gun when you are a felon. [Audience] Well we were in a bubble, a stock market bubble in particularly health care stocks and part of it was just like the mortgage thing, you rationalize that it's okay. [Audience] No, and it really didn't, maybe toward the end it got down to patient care level but it was pretty much in the boardroom. And the day we did it, we cooked the books, you don't think about the consequences, you don't look ahead and think oh my God this is going to turn out very terrible. You rationalize it, you believe you are doing the best choice, you are picking the best option about doing what you do. White collar criminals are like that. I met an FBI agent at a conference the other day and he was very clear, the typical criminal that holds up a bank with a gun, the money is in the bank and he wants it, okay; the white collar criminal though many times rationalizes and convinces himself that what you are doing is not really bad and if you can pull if off, what the heck. [Audience] All of our accounting was centralized so people sent all their financial information, payrolls and everything was done centrally. So Bill Owens was a very smart guy and he was able to do it. How he pulled it off for all those years I don't know. The forensic accounting bill to clean up the books was $643 million dollars so there were literally hundreds of thousands of bogus entries made. How the auditors did not catch it, I don't know. I wasn't surprised that they didn't catch it the first year I was there but how it went on, the last audited balance sheet had 300 million in cash that didn't exist. So they weren't real good auditors. [Audience] You really should. Certainly if you know it's fraudulent, you know it's fraud, you should report it and you could be rewarded handsomely. The new [inaudible] bill, I think you get 30% of the fine that ultimately goes down so. There is a lot of controversy around that whether or not that's a good piece of legislation or not but you certainly should, you should tell. But it takes a lot of courage. The easy thing to do is just walk away but if you know for sure that there is out and there is hotlines and ways you can do it and not be known. [Audience] The 2010 Aaron Beam is a lot smarter than he was back then. [Audience] I would have said no Richard we can't do this, this is pushing the envelope too far, this is fraud, this is wrong. And he would have fired me, I would have lost my job but I should have done that and I would do it today. You get religion when you go to prison. [Audience] The trick with a person like Richard is that the personality type of a CEO, a real hard charging CEO has a lot of the traits that Richard has. You just need to size them up and make sure that they are not a sociopath because clearly if Richard can sue me for anything is probably me calling him sociopath but he is, he has no conscience, and you have to figure that out. But you look at the people, look at Donald Trump, I mean he loves himself, he loves being on reality TV, everybody wants to go to work for Donald. I am not saying Donald Trump is Richard Scrushy but Richard had the Donald Trump type personality of loving himself. [Audience] Bill Owens got 5 years, Weston Smith who actually wrote chapter 10 in my book he got two years, Mike Martin the CFO that replaced me got 3 years but really kind of life sentences. If you plead, if you come forward and plead then the government does have to take you to court ,you do get a lot better deal. All of those guys, myself, if I had tried to lie through it and they had found me guilty, I probably would have gone to prison for many, many, many years. [Audience] Okay thank you.