Witness says Scrushy, fearing lawsuit, ordered fraud to continue

Thursday, February 3, 2005

BIRMINGHAM, Ala. -- With earnings sagging at HealthSouth Corp., then-chief executive Richard Scrushy ordered aides to continue a huge fraud because he planned to sell $100 million in stock and "didn't want to get sued," a former finance chief testified Wednesday.

The ex-chief financial officer, Bill Owens, also described Scrushy as a master salesman who ruled with fear and intimidation that was great enough to make others go along with a scam prosecutors have described as a $2.7 billion earnings overstatement.

Owens, one of 15 former executives who admitted guilt in the scheme, spent a second day on the stand in Scrushy's federal trial on corporate fraud charges.

Testifying for the prosecution under a plea deal, Owens said Scrushy told him in late 1997 that he planned to sell $100 million in stock and wanted to know if a fraud that began a year earlier could continue without being detected.

Workers used correction fluid on old invoices, whiting out legitimate numbers and putting in bogus figures, Owens said, and they falsely recorded $400 million in fraudulent "goodwill" assets when HealthSouth bought rival Horizon CMS for more than $1.5 billion in 1997.

Prosecutors allege Scrushy, 52, got rich from stock sales, bonuses and salary by directing a fraud that led to the overstatement of HealthSouth earnings from 1996 through 2002.

The defense contends Owens and other subordinates in HealthSouth's corporate accounting offices lied to Scrushy for years, leaving him unaware of the conspiracy.

In court Wednesday, Owens said Scrushy directed him and another former finance chief, Mike Martin, to keep the fraud going for another year because he "didn't want to get sued" by shareholders if the stock's price dropped.

Scrushy, HealthSouth's primary founder in 1984, is charged with conspiracy, fraud, money laundering, obstruction of justice and perjury. He also is accused of false corporate reporting.

If convicted, he could receive what amounts to a life sentence. Prosecutors also are seeking $278 million in assets.

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