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Accountant’s Testimony Adds Up To Trouble for HealthSouth

Apr 15, 2003 | AP

Peppering her testimony with nervous laughter, an accountant on Monday outlined the finances of HealthSouth Corp. founder Richard M. Scrushy, including his mortgage-free mansions and a web of personal companies.

Mary Schabacker, who oversees the books of five corporations that Scrushy controls, said the only debt any of them owe is to corporate siblings ó and they generally don’t pay it back.

“It’s all currently due, but do we have plans to [pay] it? No," she said, citing a loan from one of Scrushy’s companies to Uppseedaisees, a women’s loungewear line started by his third wife, Leslie.

Schabacker testified in the fourth day of a hearing on whether Scrushy’s millions must remain frozen as the government continues a probe into what it calls massive accounting fraud at HealthSouth.

U.S. District Judge Inge Johnson said the hearing would resume Tuesday.

The government has accused Scrushy of running a scheme to overstate HealthSouth’s earnings by $2.5 billion since 1997 to make it appear the company was meeting Wall Street forecasts. Eight former executives have pleaded guilty to fraud and conspiracy charges, and a ninth has reached a deal with prosecutors and is scheduled to plead guilty Friday.

Scrushy was fired as chairman and chief executive of HealthSouth earlier this month. He has not been charged with a crime.

Speaking to reporters outside the courthouse, Scrushy attorney Tom Sjoblom said his client didn’t learn of the fraud until March 17 ó two days before the Securities and Exchange Commission sued Scrushy and the company.

Sjoblom said William T. Owens, a former HealthSouth chief financial officer who has pleaded guilty, engineered the scam. “We are claiming Mr. Scrushy was set up," he said.

In court, Schabacker said one of Scrushy’s intertwined companies controls his airplanes and another is for his 92-foot yacht, Chez Soiree. The others are for personal trusts, real estate and the management structure of his personal fortune.

Employees of the five corporations Scrushy controls frequently do work for his other companies, she said, and Scrushy transfers personal money into them. He has 31 brokerage and bank accounts, she said.

While Scrushy owns four homes in Alabama and Florida with a combined value of more than $22 million, Schabacker said she was unaware of mortgages on any of the property.

Schabacker, Scrushy’s personal accountant since September, said she took over the job after the suicide of Bill Massey, who worked for Marin Inc., the management umbrella for Scrushy’s personal holdings.

Schabacker testified that Massey had admitted to stealing from Scrushy, and that at least $500,000 was missing.

Schabacker said Scrushy’s accounts were “a mess" when she took over because Massey “hadn’t been doing his job."

The corporations still don’t have “good numbers," Schabacker said, so she is filing for extensions of today’s tax deadline.

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