HealthSouth Corp. Chief Financial Officer William T. Owens on Wednesday pleaded guilty to falsifying financial statements and agreed to help a federal probe of the company and Chief Executive Richard Scrushy.
Owens admitted that he began conspiring in 1996 with Scrushy to inflate earnings of HealthSouth, the biggest U.S. operator of rehabilitation hospitals. The Securities and Exchange Commission accused HealthSouth and Scrushy last week of overstating profit by $1.4 billion since 1999.
Owens is the second company executive to plead guilty and agree to help prosecutors build their case. Vanguard Group, one of HealthSouth's biggest investors, said it would join a lawsuit against the company, which is struggling to cover $345 million in bonds that come due Tuesday and avoid a bankruptcy filing.
"It's a disaster," said Tom Eck, a fund manager for U.S. Bancorp, which held 1.3 million HealthSouth shares in December. "It's one thing to fall on hard times and under-deliver. It's a whole other thing to lie through your teeth for years on end."
HealthSouth placed Scrushy and Owens on leave last Thursday, a day after the SEC disclosed its charges. The firm is moving to fire Owens, spokesman Ernie Knewitz said.
Former CFO Weston Smith pleaded guilty last week and also is helping investigators unravel the alleged fraud.
Owens, 44, faces up to 30 years in prison and a fine of $5.5 million. He is helping prosecutors in a bid for leniency at sentencing.
HealthSouth shares, which sold for $15.69 last May, began trading over the counter Tuesday after the New York Stock Exchange announced plans to delist the firm. Shares were unchanged Wednesday at 11 cents.
Scrushy's attorneys didn't return calls seeking comment.