Scrushy’s Role in Fraud Disputed

The defense in Richard Scrushy’s corporate fraud trial sought to poke holes Monday in the claims of a key witness who contends that the fired HealthSouth chief executive was behind a scheme to overstate earnings.

Under cross-examination by Scrushy attorney Jim Parkman, former HealthSouth Chief Financial Officer Bill Owens conceded that Scrushy never attended big meetings of a group called “the family” that carried out the fraud, and that he didn’t previously identify Scrushy as being a member at all.

Also, jurors heard about a cloak-and-dagger mood at HealthSouth, with meetings moved to homes and cars amid worries of electronic eavesdropping. And the defense tried to refute Owens’ claim that Scrushy knew a company financial announcement in 2002 was false.

The questioning came in the ninth day of testimony by Owens, among 15 former HealthSouth executives who have pleaded guilty in what prosecutors describe as a $2.7-billion overstatement of earnings from 1996 through 2002.

The defense claims that Owens was the “godfather” of the family and that the group inflated earnings on its own and hid the crime from Scrushy for years.

In sometimes combative questioning in U.S. District Court in Birmingham, Ala., Parkman brought out that Scrushy never met with the family as the group of executives worked for years to inflate HealthSouth earnings to meet Wall Street forecasts.

“Mr. Scrushy never attended a meeting with multiple people there,” Owens said.

But Owens testified that anyone who was involved in the fraud was a member of the group in his mind, so the size of the meeting didn’t matter.

“A meeting between he and I discussing the fraud was a meeting of the family,” Owens said.

“No,” Parkman responded.

“Yes, it was,” Owens answered.

Owens acknowledged that he didn’t previously refer to Scrushy as being a member of the family, referring to him before only as a “co-conspirator.”

“It just struck me that I’d left his name out,” Owens testified.

As investigators focused on allegations of insider trading by Scrushy in late 2002, Owens said, finance executive Tadd McVay and Bill Horton, HealthSouth’s corporate counsel, asked him to meet them at McVay’s home on a Sunday to discuss concerns of investors and outside lawyers who wanted Scrushy removed. The two were worried that eavesdropping equipment at HealthSouth headquarters would pick up the conversation if they talked at the office, Owens said.

Owens denied Parkman’s suggestions that the meeting was a “coup,” and he said he stuck up for Scrushy, who was board chairman at the time.

“I told them I didn’t think Richard should have to go and we should defend Richard,” said Owens, who had briefly replaced Scrushy as chief executive. Owens subsequently relinquished the title of CEO back to Scrushy, but he said the demotion didn’t anger him.

Owens has portrayed Scrushy as being at the heart of a conspiracy to overstate HealthSouth earnings. The government claims Scrushy made millions off the fraud because the overstatement kept his stock prices high.

Scrushy could get what amounts to a life sentence if convicted.