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HealthSouth Executive Admits to Falsifying Taxes

Aug 28, 2003 | Bloomberg News

A former executive of the HealthSouth Corporation admitted yesterday that he falsified company tax returns, pleading guilty to participating in what prosecutors say was a $2.5 billion accounting fraud.

Richard Botts, a former senior vice president in the company's tax department, acknowledged that he inflated the assets of HealthSouth on federal and state tax returns. He is among 14 people charged at HealthSouth, the nation's largest operator of rehabilitation hospitals. All of those charged are helping prosecutors in an expanding investigation of Richard M. Scrushy, the former chief executive.

The tax scheme described by Mr. Botts broadens the accounting fraud outlined since March by other executives, including all five chief financial officers in the company's history. Mr. Botts told United States District Judge U. W. Clemon yesterday that he learned in late 2000 about the fraud from two other former officers who have pleaded guilty.

"I regret my actions, and I'm very sorry for my actions that furthered this conspiracy," Mr. Botts told Judge Clemon in Birmingham, Ala., where HealthSouth is based.

Mr. Scrushy, who was fired in March, has denied wrongdoing and blamed the fraud on William T. Owens, a former chief financial officer. Lawyers for Mr. Scrushy have said he should not be indicted.

The Securities and Exchange Commission has accused HealthSouth and Mr. Scrushy of inflating earnings by $1.4 billion, while prosecutors say the fraud could exceed $2.5 billion.

HealthSouth is reorganizing its businesses after defaulting on bond payments and a bank loan agreement. The company is trying to avert a bankruptcy filing, and it made $117 million in past-due payments this month under various borrowing agreements. HealthSouth owes bondholders and bank lenders more than $3.3 billion.

Mr. Botts, 44, pleaded guilty to charges including mail fraud and conspiracy to commit securities fraud. He is cooperating in a bid for leniency, and faces up to five years in prison on each of the two charges. The charges were filed by prosecutors on July 31, one day after Mr. Botts resigned.

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