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2 HealthSouth Execs To Plead Guilty

Aug 1, 2003 | AP

Two executives of HealthSouth Corp. will plead guilty to criminal charges, including filing false tax returns to hide a scheme to overstate company earnings by at least $3.5 billion, the government announced Thursday.

The latest plea deals the 13 th and 14 th since the government sued HealthSouth in March confirmed the Internal Revenue Service was involved in the case.

Prosecutors said the investigation now extended far beyond its roots in the corporate-accounting department at Health-South, which bills itself as the largest U.S. operator of rehabilitation hospitals. "This wasn’t something just thought up by the accountants. It wasn’t something they did on their own. It is a business fraud. It is widespread," U.S. Attorney Alice Martin said at a news conference in Birmingham, where HealthSouth is based.

Richard Botts, 45, a senior vice president for tax, agreed to plead guilty to charges including conspiracy to commit security fraud and falsifying books, the government said. He was accused of mail fraud for allegedly providing false information to state tax authorities and the Internal Revenue Service to conceal overstated assets and to cover up fraud.

Will Hicks, 39, vice president of investments, agreed to plead guilty to conspiracy to make false statements to auditors and maintaining false records, the government said.

Botts could face up to 10 years in prison and fines of $500,000, while Hicks could receive a maximum five years imprisonment and a $250,000 fine. Both men, however, could get probation. No court dates were immediately set.

Martin said Botts and Hicks were cooperating with investigators, as were the company and everyone who has pleaded guilty to date.

Botts, who went to work at HealthSouth’s tax department in 1998, was in charge of the company’s tax returns, according to the government’s charges. He filed federal returns in 2001 and 2002 that concealed the fact that assets had been inflated to artificially boost earnings, prosecutors charged.

Ismael "Pete" Guerra, assistant agent in charge of the IRS office in Atlanta, declined comment on the amount of overstated assets. While HealthSouth has indicated it may seek a refund on tax overpayments linked to the fraud, Guerra said it was too early to determine how much was at stake.

Hicks is a former health-care analyst who issued reports on HealthSouth and then came to work for the company. He was part of a scheme to cover up a $13 million investment in assisted-living centers that became "virtually worthless," Martin said.

From 1996-99, Hicks also was a principal, along with fired HealthSouth chief executive officer Richard Scrushy and former chief financial officer Michael Martin, in 21 st Century Health Ventures, a company that reportedly invested about $10 million for HealthSouth.

Scrushy, through his attorneys, has denied any wrongdoing.

But his lawyers have said they expect him to be indicted.

Michael Martin and the company’s four other CFOs are among those who have pleaded guilty. Some of the defendants have implicated Scrushy.

Alice Martin said the grandjury investigation was continuing and reached into the company’s operating divisions. Using the media to speak to workers at HealthSouth’s Birmingham headquarters, she said at the news conference that anyone who was involved in the fraud still had time to come forward. "The window is closing very rapidly," she said.

Carmen Adams, special agent in charge of the FBI office in Birmingham, said extra agents had been in Alabama for "months at a time" assisting with the investigation.

HealthSouth has said it is the largest U.S. provider of outpatient surgery, diagnostic and imaging, and rehabilitation services. The company has nearly 1,700 facilities and 51,000 employees in every state and abroad.

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