Ex-CFO at HealthSouth to Plead Guilty
A third former chief financial officer at HealthSouth Corp. agreed to plead guilty Tuesday to charges arising from a widening accounting scandal as the health-care giant released new corporate governance rules.
Michael Martin, who worked as CFO from October 1997 to February 2000, was charged with conspiracy to commit wire fraud and securities fraud, and with falsifying financial information.
Martin, 42, of Birmingham, Ala., struck a plea deal and is cooperating with authorities investigating the company, U.S. Atty. Alice Martin said.
The prosecutor, who is not related to the former executive, said Martin’s departure from HealthSouth three years ago was related to the accounting fraud, but she declined to elaborate.
“Mr. Martin’s plea demonstrates you cannot leave a corporate fraud conspiracy by simply walking out the corporation’s front door,” she said.
The former CFO was scheduled to enter the guilty plea before U.S. District Judge U.W. Clemon on Tuesday. But Clemon refused to accept the plea, complaining in court that the time of the plea hearing was made public before he even knew he had the case.
Clemon said he refused the plea because he wanted to avoid the impression that he was “part of the prosecutorial team.” He said he would schedule a hearing later.
Meanwhile -- partly in answer to criticism that former Chief Executive Richard Scrushy held too much sway with directors -- HealthSouth said the board had approved new rules requiring that most directors be independent from management. They also must invest at least $100,000 in HealthSouth stock.
The independent directors must meet without management directors at least twice annually, and such gatherings must be led by a non-management director. The board also established an annual review process for itself.
Eight former HealthSouth executives, including former CFOs Weston Smith and William T. Owens, previously pleaded guilty and are cooperating with the government, which says the company overstated earnings by $2.5 billion since 1997 to meet Wall Street expectations.
Scrushy, fired last week as chief executive and chairman, is the target of a criminal investigation. He has denied wrongdoing and has ignored the company’s request to resign from the board. Owens also has not responded to the company’s call for his resignation as a director.
Michael Martin went to work at HealthSouth in 1989, working in the accounting department in various jobs before his promotion and departure.
The charges accuse him of following Scrushy’s orders to make sure the company’s earnings met Wall Street’s expectations and, by doing that, enriching himself and others.
Although some corporations accused in fraud cases kept two sets of books -- one real and the other bogus -- the prosecutor said there was no indication of such a practice at HealthSouth.
Rather, she said, HealthSouth officials would make coded entries when falsifying accounts.
HealthSouth is 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.
