Posted on: Thursday, February 3, 2005
Witness links fraud to HealthSouth stock sale
By Greg Farrell
USA Today
BIRMINGHAM, Ala. — The government's star witness in the trial of former HealthSouth CEO Richard Scrushy didn't drop any bombshells yesterday. But he tossed smaller verbal grenades designed to show that Scrushy was aware that his company was inflating its earnings in the late 1990s and that he reaped hundreds of millions of dollars from the fraud.
Testifying a second day, former HealthSouth chief financial officer William Owens said that in 1997, Scrushy told him that he wanted to sell about $100 million of stock. Owens said that Scrushy "asked me how I felt about the fraud," before telling him to "keep it going for at least another year, because he didn't want to get sued if the stock went down."
During that same year, Owens said he used HealthSouth's acquisition of Horizon/CMS to book $400 million worth of goodwill on the company's balance sheet, once again helping it pad its earnings and meet Wall Street expectations.
Under questioning from Justice Department attorney Richard Wiedis, Owens said that he informed Scrushy of his actions and that the CEO wanted to know two things: whether Owens could get the accounting fiction past auditors at Ernst & Young, and how many people were involved.
Owens assured him that he could get the accounting entry approved, and told Scrushy that he pulled the trick off with the help of two HealthSouth colleagues and a finance executive at Horizon.
The U.S. attorney here has accused Scrushy of orchestrating a $2.7 billion accounting fraud. So far, 15 former HealthSouth executives, including Owens, have pleaded guilty to charges related to the case. Scrushy faces 58 criminal counts, including money laundering, mail and wire fraud and violating the Sarbanes-Oxley Act. If convicted on all counts, Scrushy, 52, faces decades in jail, and the government could seize his personal fortune of nearly $300 million.
Not every HealthSouth finance executive was involved. Owens testified that in August of 1999, Leif Murphy, an executive in the treasury department, decided to quit. The day before he left, Murphy gave Owens a book containing actual HealthSouth earnings numbers.
"I was very surprised," Owens said, noting the accuracy of the revenue figures in Murphy's calculations. "The numbers in this document were prepared by someone who was not a part of the conspiracy."
Owens said he approached his boss, Mike Martin, who had also received Murphy's book. Martin, who has pleaded guilty and is expected to testify, told Owens that Murphy had given the book to Scrushy, as well. "Mr. Martin told me that Mr. Scrushy was also surprised that Mr. Murphy had been able to so accurately reflect what was going on," he said.
