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Ex-Officer of HealthSouth Agrees to Help Prosecutors

Apr 22, 2003 | Bloomberg News

A former treasurer and chief financial officer of HealthSouth, Malcolm E. McVay, has agreed to plead guilty to accounting fraud charges, federal prosecutors said today.

Mr. McVay, the 10th executive to plead guilty, has agreed to help prosecutors in their investigation of Richard M. Scrushy, the former chief executive of HealthSouth. Mr. Scrushy has not been charged with a crime but faces civil securities complaints.

Mr. McVay, 41, is charged with conspiring with Mr. Scrushy and others to inflate earnings to meet Wall Street expectations at HealthSouth, the largest operator of rehabilitation hospitals in the nation. Two former chief financial officers, Weston L. Smith and William T. Owens, have pleaded guilty and a third, Michael D. Martin, has agreed to do so.

"The cooperation of all the C.F.O.'s is important," said Alice Martin, a United States attorney, who is not related to Mr. Martin. "Their knowledge of how the fraud was perpetuated and perpetrated make this a very focused search for the truth about this vast accounting fraud."

Prosecutors, who say the conspirators inflated earnings by $2.5 billion since 1997, have charged four of the five people who held the chief financial officer's job since Mr. Scrushy helped found the company in 1984. Mr. Scrushy, who was fired, has denied wrongdoing and blamed Mr. Owens and other subordinates for the fraud.

Mr. McVay, who joined the company in 1999, agreed to admit that he helped inflate HealthSouth's net income, revenue, earnings per share and liabilities, Ms. Martin said. He signed a financial statement for the third quarter of 2002 that he knew was false when it went to the Securities and Exchange Commission, she said.

No date has been set for Mr. McVay or Mr. Martin to enter guilty pleas in federal court in Birmingham.

HealthSouth fired Mr. McVay last Wednesday, a company spokesman, Andy Brimmer, said.

The S.E.C. has said that HealthSouth, Mr. Scrushy and the executives who pleaded guilty committed accounting fraud. It said HealthSouth inflated earnings by $1.4 billion and assets by $800 million since 1999. Mr. Scrushy has been fighting a freeze on his assets imposed after the S.E.C. filed a civil complaint on March 19.

During seven days of hearings, Mr. Scrushy's lawyers have tried to depict him as a figurehead and have argued that Mr. Owens was leading a corporate coup to depose him. The hearings will resume this week in Birmingham.

Ms. Martin said the hearings on the asset freeze, in which Mr. Scrushy has summoned several prosecution witnesses to testify, have not undermined the criminal cases she was building.

"It is allowing us to see what Mr. Scrushy's attorneys are stating as his defense," she said.


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