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Five More Charged In HealthSouth Fraud Case

Apr 3, 2003 | FT.COM

Five more HealthSouth executives were charged on Thursday with conspiracy to commit a $1.4bn accounting fraud which prosecutors claim involved large numbers of staff at the stricken US healthcare company.

The indictments bring to eight the number of employees facing criminal charges since the Securities and Exchange Commission filed a complaint against the company and Richard Scrushy, its former chief executive, two weeks ago.

William Owens and Weston Smith, two former chief financial officers, as well as Emery Harris, a vice-president of finance, have already pleaded guilty to fraud charges and agreed to co-operate with the government.

The latest executives to face charges include Kenneth Livesay, HealthSouth's chief information officer, who was expected to plead guilty at a hearing in Birmingham, Alabama, on Thursday .

The other four Angela Ayers, Cathy Edwards, Rebecca Kay Morgan and Virginia Valentine all worked in the company's finance department.

The government alleges that the Ms Ayers and Ms Edwards, both vice-presidents, with Ms Morgan, group vice-president, and Ms Valentine, assistant vice-president, conspired with other executives, including Mr Owens and Mr Smith, from about 1994 to overstate earnings.

Accounting staff were directed to adjust numbers to match or exceed Wall Street expectations. These meetings were called "family meetings" and those attending "family members".

The finance department is being run by Alvarez & Marsal, the turnround firm hired by HealthSouth last week.

Separately, the company said it cut 165 "non-clinical" positions at its Birmingham headquarters, where 830 people are employed. About 3,500 work for HealthSouth in the city.

Cars streamed off the company's site early yon Thursday as employees received the news.

"Because of one person's greed, he's brought this company down," said Elliott Williams, in tears, after receiving word of her dismissal. She had worked at the company for five years.

"I learned a lot from this company but I can't believe that this one person could do this to us."

HealthSouth fired Mr Scrushy, who was one of its founders, and asked him to resign from the board. Neither he nor Mr Owens, who has also been dismissed, has done so.

The HealthSouth board, under scrutiny for some members' close ties to Mr Scrushy, is expected to meet on Friday. The company said an announcement of new members is not expected, but earlier this week Edward Blechschmidt and Lee Higdon agreed to stand as part of a shareholder activist goal of putting more independents on the board and eventually forcing out Mr Scrushy.

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