3rd Former CFO Says Scrushy Knew of Fraud

A third former finance chief at HealthSouth Corp. tied Richard Scrushy to a huge fraud at the rehabilitation chain Monday, describing the fired chief executive as being happy about a plan to illegally ditch millions in expenses.

Mike Martin said Scrushy expressed his approval when told of a plan by Martin and another former HealthSouth finance executive, Bill Owens, to wrongly put $300 million of HealthSouth expenses on the books of Horizon CMS during a merger in 1997.

“He said, ‘Damn, you guys are good,” said Martin, who is among 15 former HealthSouth workers who have pleaded guilty in the fraud. The transaction helped further the scheme to overstate earnings, Martin said.

Martin said they were trying to keep HealthSouth’s share price high to avoid any insider trading suspicions because he had sold $3 million of HealthSouth stock in 1997 and Scrushy had sold more than $100 million.

“Even though we knew we were committing fraud, we felt it was important to keep the stock price up for at least a year” to avoid shareholder lawsuits, Martin said.

Owens and HealthSouth’s first CFO, Aaron Beam, previously testified that Scrushy was part of what prosecutors describe as a conspiracy to overstate earnings by about $2.7 billion for seven years beginning in 1996. Owens and Beam also have pleaded guilty.

The defense claims that the former CFOs and other subordinates used lies to hide the fraud from Scrushy, allowing them to earn more money as they climbed the corporate ladder.

Scrushy, free on $10-million bond, is accused of conspiracy, fraud, money laundering, obstruction of justice, perjury and false corporate reporting. He is the first CEO being charged with violating the Sarbanes-Oxley Act.

If he is convicted, Scrushy could receive what amounts to a life sentence and have to forfeit as much as $278 million in assets.