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Ex-CEO Takes Fifth at Hearing

Apr 10, 2003 | AP Fired HealthSouth CEO Richard Scrushy refused to answer questions Wednesday about claims of a $2.5 billion fraud at the rehabilitation giant, instead invoking his right to avoid selfincrimination.

Faced with more than 50 questions about his role in the alleged scheme and his personal finances, Scrushy sat mostly silent on the witness stand during the hearing in a federal courtroom.

Defense attorney Tom Sjoblom repeatedly cited Scrushy's Fifth Amendment right in advising his client not to answer queries from Bill Hicks of the Securities and Exchange Commission.

Scrushy will be charged in a criminal indictment "that is about to drop," Sjoblom told the judge. Eight former HealthSouth executives already have pleaded guilty, and a ninth has agreed to do so. U.S. Attorney Alice Martin declined to comment about whether Scrushy would be charged criminally.

The hearing was over whether Scrushy's personal assets should remain frozen while the government investigates what it calls a massive accounting fraud at HealthSouth.

Scrushy's lawyers said he needs some $10 million in living expenses, plus another $60 million for attorneys fees and tax payments. Sjoblom wouldn't let Scrushy say why he needed so much money to get by.

U.S. District Judge Inge Johnson issued no immediate ruling.

Only once did Sjoblom let Scrushy answer a question directly, offering no objection when Hicks asked whether he would have fired any employee who fraudulently altered HealthSouth accounts.

"Yes," Scrushy said quietly.

After some legal wrangling, Scrushy also said he didn't recall the value of HealthSouth stock he sold while with the company. The government contends it was worth about $175 million.

The hearing included testimony from a former HealthSouth accounting supervisor who said he became involved in the accounting fraud at the direction of his then-boss, vice president Cathy Edwards.

Michael Vines, who managed assets for about 500 HealthSouth facilities in the West, said Edwards instructed him to provide invoices which she then altered to make it appear the company had paid less for equipment than it really did.

Expenses were regularly transferred to capital accounts to make it appear the company was in better financial shape than it was, he testified. The government contends Scrushy directed Edwards and other executives to overstate earnings so HealthSouth's performance would match Wall Street expectations.

But laying out a possible defense, Sjoblom suggested Scrushy knew nothing about the fraud. He suggested Scrushy saw only consolidated financial statements and reports prepared by auditor Ernst & Young, which Vines said was deceived by the fake documents.

Sjoblom suggested that blame for the financial debacle rested with employees like Vines, who knew that numbers were being faked but never reported the fraud to a company hot line established by Scrushy.

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