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HealthSouth Co-Founder, Ex-CFO Pleads Guilty

May 5, 2003 | Birmingham Business Journal

Aaron Beam, HealthSouth Corp.'s first chief financial officer and a company co-founder, pleaded guilty in federal court Monday to bank fraud and criminal forfeiture.

Beam, 59, of Fairhope, Ala., is the last of five former HealthSouth CFOs to plead guilty after the Securities and Exchange Commission's mid-March charges that HealthSouth and its founder and fired CEO, Richard Scrushy, inflated company earnings by some $2.5 billion since 1997 in order to meet or exceed Wall Street expectations.

The four other CFOs are Weston Smith, William Owens, Malcolm McVay and Michael Martin.

Last week, McVay and Martin both pleaded guilty to wire fraud and filing false information with the SEC. In their court testimony, the men implicated Scrushy in the alleged accounting fraud at the Birmingham-based health-care provider.

Beam served as HealthSouth's CFO from its founding in 1984 to October 1997. Beam is also an original investor in the company, which once was known as AmCare. He could face 30 years in prison and a $1 million fine.

In its charges, the U.S. District Attorney's office alleges that from April 1996 to October 1997, Beam and others devised a scheme to obtain loans and credit from Birmingham's AmSouth Bank by using falsified financial information.

U.S. District Attorney Alice Martin says that in April 1996 HealthSouth entered into a restated credit agreement with 32 worldwide lenders, including AmSouth. The lenders extended a line of credit totaling $1.25 billion, including a $55 million loan from AmSouth.

Federal investigators mention Scrushy as being part of the deception against the lenders. Scrushy has been charged with insider trading by the SEC, but has not faced any criminal charges.

Scrushy's attorneys have lambasted any allegations that their client knew of the alleged scheme. Instead, they say Scrushy learned of the fraud from Owens only two days before the SEC made its initial charges March 19.

AmSouth spokesman Rick Swagler says the bank ended its relationship with HealthSouth "some time ago." The company does not owe the bank any money.

Meanwhile, Scrushy is awaiting a court ruling on whether or not he will get some $40 million of his frozen financial assets for his legal defense and living expenses. A ruling could come this week.

Alice Martin, who is no relation to Michael Martin, says more charges are forthcoming in the HealthSouth investigation.

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