Ex-Finance Chief Says Scrushy Intimidated

A former HealthSouth Corp. chief financial officer on Monday described ousted Chief Executive Richard Scrushy as a bullying corporate “king” who sweet-talked him into signing false financial statements.

Weston Smith, the fifth and final former HealthSouth finance chief to take the stand against Scrushy at his corporate fraud trial in U.S. District Court in Birmingham, Ala., said he planned to quit HealthSouth rather than sign bogus financial statements in 2002 because he was worried about the new Sarbanes-Oxley law, which included long prison terms for corporate fraud.

But Smith said that in a private meeting, Scrushy persuaded him to sign the statements by telling him about plans to end the fraud, lower earnings expectations and split HealthSouth into two companies.

“His analogy was that we all rode in together in this pickup truck and we were all going to ride out on it,” said Smith, testifying under a plea deal.

Describing an atmosphere of intimidation at HealthSouth, Smith said Scrushy would humiliate subordinates who challenged him during meetings.

“He was referred to as the king. He made every decision,” Smith said.

U.S. District Judge Karon Bowdre upheld a defense objection to Smith’s characterization of Scrushy. But the former executive continued with an unflattering portrayal of his onetime boss, depicting Scrushy as a tyrannical back stabber.

“He did not tolerate people who were not ‘yes’ men. If you were not in the room, you were a target, because he loved to talk about people behind their back,” Smith said.

Like the four chief financial officers to testify before him, Smith said Scrushy was part of what prosecutors have described as a conspiracy to overstate HealthSouth earnings by about $2.7 billion for seven years beginning in 1996. They claim that Scrushy made millions off the scheme through stock sales, bonuses and salary.

The defense says Scrushy’s aides were behind the fraud and lied to Scrushy for years to cover up its existence so they could earn promotions and raises.

Smith was the first of 15 HealthSouth executives to plead guilty in March 2003. He hasn’t been sentenced but faces almost $7 million in fines and forfeitures and could be sentenced to at least 10 years in prison.

Scrushy is charged with conspiracy, fraud, money laundering, obstruction of justice and perjury. He also is accused of false corporate reporting in the first case of a chief executive being charged with violating the Sarbanes-Oxley Act.

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