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HealthSouth CFO Admits Fraud Charges

Mar 26, 2003 | FT.COM

William Owens, chief financial officer of HealthSouth, the embattled US healthcare group, pleaded guilty on Wednesday to wire and securities fraud and filing false financial reports with the Securities and Exchange Commission.

Mr Owens, who was placed on administrative leave last week, is the second executive to face criminal charges since last week, when the SEC said HealthSouth and Richard Scrushy, chief executive and chairman, had inflated the group's earnings by $1.4bn and overstated its assets by $800m.

Weston Smith, the former chief financial officer, pleaded guilty last week to similar charges. Both he and Mr Owens have agreed to co-operate with investigators.

Mr Owens served in numerous positions, including president and chief executive officer, after he joined the company in 1986, the year it went public. Between 1999 and 2001, he received a total of about $1.1m in salary as well as a $1.5m bonus in 2001, according to SEC filings. The indictment depicts Mr Owens, a certified public accountant, as an orchestrator of a scheme to manipulate numbers so that he and other executives could "fraudulently enrich themselves".

The government alleges that Mr Owens would give Mr Scrushy reports showing the company's financial results. The two would then instruct accounting staff to find ways of ensuring that the numbers were in line, or surpassed, Wall Street expectations.

One of those methods allegedly included overestimating the amount of money that the company expected to recover from insurance companies for services.

"As the most senior HealthSouth executive to admit to this massive accounting fraud, Mr Owens' co-operation in the investigation has helped us rapidly identify and understand the extent to which the company falsified its financial reports for the purpose of inflating its stock price," said Alice Martin, US attorney.

Mr Owens could face a maximum of 30 years in federal prison and a $5.5m fine. The company said it was in the process of dismissing Mr Owens.

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