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Another Guilty Plea at HealthSouth

May 5, 2003 | Bllomberg News

A former chief financial officer of HealthSouth, Aaron Beam, pleaded guilty to bank fraud today.

Mr. Beam becomes the fifth chief financial officer to admit he conspired with Richard M. Scrushy, who was fired as chief executive, in an accounting fraud that prosecutors say inflated earnings by as much as $2.5 billion.

Mr. Beam, 59, admitted that he helped Mr. Scrushy inflate earnings in 1996 and 1997 and mislead lenders to HealthSouth, the largest operator of rehabilitation hospitals. All five of HealthSouth's former chief financial officers have pleaded guilty since March 19 and are helping prosecutors investigate Mr. Scrushy's role.

The admissions by Mr. Beam strengthen the case that prosecutors are building against Mr. Scrushy, who has not been charged with a crime and says that subordinates intent on ousting him were responsible for the fraud. The Securities and Exchange Commission accused Mr. Scrushy of accounting fraud and insider trading.

"You have this series of C.F.O.'s over time, and if you're trying to establish crimes that occurred during a given period of time, you may need that C.F.O. to testify," said Michael A. Perino, a securities law professor at St. John's University School of Law in New York. "To the extent that they are trying to build a case that covers more than one or two acts of securities fraud, they're going to need someone from each period."

Eleven former executives, including the five former chief financial officers, have entered guilty pleas in federal court in Birmingham.

"There were obviously inappropriate activities," Donald Briskman, Mr. Beam's lawyer, said after his client pleaded guilty before United States District Judge Robert Propst.

The judge set a July 31 sentencing date for Mr. Beam, who faces up to 30 years in prison. His sentence is expected to be far less than that in light of his help to prosecutors in the investigation.

Another federal judge in Birmingham, Inge Johnson, is expected to rule this week on Mr. Scrushy's request to gain access to assets frozen after the S.E.C. sued him on March 19. Mr. Scrushy is seeking $10 million for living expenses and $30 million for legal and forensic auditing costs.

The S.E.C., which estimates Mr. Scrushy has about $150 million in assets, has asked the judge to suspend any ruling in favor of Mr. Scrushy while it appeals such a decision, according to court papers filed last week.

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