Ex-CEO of HealthSouth takes Fifth Amendment

Thursday, April 10, 2003

BIRMINGHAM, Ala. -- Fired HealthSouth CEO Richard Scrushy refused to answer questions in federal court Wednesday about claims the company overstated earnings by $2.5 billion to meet Wall Street expectations.

Scrushy faced more than 50 questions from Bill Hicks of the Securities and Exchange Commission but repeatedly invoked his Fifth Amendment right to avoid self-incrimination.

The SEC filed a lawsuit last month accusing Scrushy and the health care giant he founded of overstating earnings. The hearing was to determine whether Scrushy's personal assets should remain frozen while the government investigates what it calls a massive accounting fraud at HealthSouth.

Scrushy, who has denied wrongdoing, will be charged in a criminal indictment "that is about to drop," defense attorney Tom Sjoblom told the judge. U.S. Attorney Alice Martin wouldn't comment on whether Scrushy would be charged criminally.

Eight former HealthSouth executives already have pleaded guilty and a ninth has agreed to do so.

Scrushy's lawyers said he needs about $60 million in living expenses, plus another $60 million for attorneys fees and tax payments. Sjoblom wouldn't let Scrushy say why he needed that amount to get by.

Diana Henze, the company's former assistant vice president for finance, testified that she went to then-chief financial officer William T. Owens with suspicions about accounting fraud in spring 1999.

Henze said Owens, who has pleaded guilty to criminal fraud charges, told her changes had to be made to meet earnings forecasts to keep the company's stock prices up or "people would lose their jobs."

Henze said she was afraid of raising her concerns directly with Scrushy because she had heard rumors that he fired employees who "brought bad news or something he didn't want to hear about."

U.S. District Judge Inge Johnson issued no immediate ruling on the assets request.

HealthSouth calls itself the nation's largest provider of outpatient surgery, diagnostic and imaging and rehabilitative health care services, with almost 1,700 facilities in all 50 states and abroad. Founded in 1984, HealthSouth employs more than 51,000 people.

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