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Former CEO of HealthSouth Takes Fifth On Fraud Claims

Firm is accused of overstating earnings by $2.5 billion

Apr 10, 2003 | Marin Independent-Journal

Fired HealthSouth Chief Executive Officer Richard Scrushy refused to answer questions in federal court yesterday about claims the company overstated earnings by $2.5 billion to meet Wall Street expectations.

Scrushy faced more than 50 questions from Bill Hicks of the Securities and Exchange Commission but repeatedly invoked his Fifth Amendment right to avoid self-incrimination.

The SEC filed suit last month accusing Scrushy and the health care giant he founded of overstating earnings. The hearing was to determine whether Scrushy's personal assets should remain frozen while the government investigates what it calls a massive accounting fraud at HealthSouth.

Scrushy, who has denied wrongdoing, will be charged in a criminal indictment "that is about to drop," defense attorney Tom Sjoblom told the judge. U.S. Attorney Alice Martin wouldn't comment on whether Scrushy would be charged criminally.

Eight former HealthSouth executives already have pleaded guilty and a ninth has agreed to.

Scrushy already has given a sworn statement in the case, and the government revealed it has a recording of him made secretly by a former HealthSouth executive who is helping investigators.

Government lawyers said Scrushy has requested about $10 million in living expenses, plus $60 million for legal fees and tax payments. Sjoblom wouldn't let Scrushy tell Hicks why he needed so much money, but Scrushy's lawyers did not contest the amount.

Other former HealthSouth officials testified at Scrushy's hearing in a government effort to show it has a reasonable chance of winning the civil case. The hearing was set to continue today.

Diana Henze, the company's former assistant vice president for finance, testified that she went to then-Chief Financial Officer William T. Owens with suspicions about accounting fraud in spring 1999.

Henze said Owens, who has pleaded guilty to criminal fraud charges, told her changes had to be made to meet earnings forecasts to keep the company's stock prices up or "people would lose their jobs."

Henze said she was afraid of raising her concerns directly with Scrushy because she had heard rumors that he fired employees who "brought bad news or something he didn't want to hear about."

U.S. District Judge Inge Johnson issued no immediate ruling on the assets request.

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