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HealthSouth Co-Founder To Admit To Bank Fraud

Apr 25, 2003 | Birmingham News

Former HealthSouth Corp. finance chief Aaron Beam Jr. agreed Thursday to plead guilty to criminal charges and help the government investigate the role of fired CEO Richard Scrushy in accounting fraud totaling $2.5 billion.

Beam, a company founder, agreed to plead guilty to bank fraud, admitting he lied when using HealthSouth financial statements to secure loans from Birmingham's AmSouth Bank and other lenders, prosecutors said.

He is the fifth out of five HealthSouth finance chiefs in company history to agree to help the government build a criminal case against Scrushy, who is accused in a government civil lawsuit of orchestrating a profit-inflating scheme between 1997 and mid-2002.

"Aaron Beam was the chief financial officer of HealthSouth when he retired," said his attorney, Donald Briskman. "As a consequence, he worked closely with senior officers of the company."

Scrushy's attorneys have said their client was fooled by the fraud of lower executives and had no knowledge of the accounting irregularities that have made HealthSouth shares almost worthless and thrust the company to the edge of bankruptcy.

Lower executives have testified during a hearing on freezing Scrushy's assets that the former CEO knew about the fraud.

Beam, who sponsored a street festival in Birmingham called the Beam's Crawfish Boil, served as the company's CFO from 1984 to 1997.

His bank fraud charge carries a maximum sentence of 30 years in prison and a fine of up to $1 million. A Department of Justice official said the time limit for authorities to file bank fraud charges is 10 years, compared to five years for the kind of securities charges leveled against other former HealthSouth executives.

"Early on, the U.S. Attorney asked people with information about the operations to come forward," Briskman said. "We responded promptly, and look forward to working the matter out for the best interest of Mr. Beam."

Last month, finance chiefs William Owens and Weston Smith pleaded guilty to criminal accounting fraud charges and agreed to cooperate with investigators.

Michael Martin, who followed Beam as HealthSouth's CFO, is scheduled to plead guilty to similar charges today. Tadd McVay, who served a brief stint as CFO after Martin, has also agreed to plead guilty.

"CFOs know where everything is," said Paul Lapides, a professor and certified public accountant who studies corporate leadership at Kennesaw State University in Georgia. "Their interaction with CEOs, lawyers and lower company accountants is substantial."

HealthSouth executives in 1996 realized the company's real profit was insufficient to meet or exceed the expectations of Wall Street analysts, prosecutors said Thursday.

That group, which included Beam and Scrushy, conspired to falsify earnings and assets to meet those expectations, the prosecutors said.

Banks lent HealthSouth money based upon what they believed were accurate financial statements, the prosecutors said.

In April 1996, Beam and other company officers lied to lenders when they restructured a credit line with a group that included AmSouth, prosecutors said. The lenders authorized $1.25 billion in loans, including $55 million from AmSouth.

AmSouth's lending relationship with HealthSouth ended "some time ago," bank spokesman Rick Swagler said. AmSouth is owed no money by HealthSouth, he said.

U.S. Attorney Alice Martin said AmSouth was named by prosecutors because it is the only one of HealthSouth's 32 lenders based in Alabama.

Beam's guilty plea agreement makes him the first of the company's founders to submit to government charges of fraud. He worked at Houston-based hospital operator Lifemark Corp. with Scrushy and quit with him in 1984 to found HealthSouth.

HealthSouth's corporate history published last year quoted Beam on his decision to leave Lifemark and join up with Scrushy:

"I went home and told my wife that I just interviewed with the biggest con artist I ever met or the most brilliant young man I ever met," the book quotes Beam as saying. "Either way, I was taking the job because he was really, really good at what he did."

Beam, a Bossier City, La., native who has lived recently in Fairhope, quit as HealthSouth's finance chief in October 1997.

"I own a little farm in Shelby County and I really do enjoy gardening and that kind of thing," he told The Birmingham News at the time. "They really don't like for you to grow corn in your backyard at Greystone, so I will do some serious gardening down on my farm on Shelby County."

Beam started his crawfish boil in 1985, and turned it over to other sponsors and organizers last year. Money raised from selling food and beverages goes to charities, such as the Leukemia Society of Alabama, which picked up $20,000 from the event in 1997.

The festival grew from a neighborhood gathering in Beam's backyard to a musical event that included acts such as Cajun artist Buckwheat Zydeco. It has been held at the Birmingham Race Course and on blocked-off city streets. Between 25,000 and 50,000 have attended in recent years.

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