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HealthSouth Financial Chief Pleads Guilty to Fraud

Mar 27, 2003 | Wall Street Journal

Federal prosecutors, wielding a tougher law against corporate fraud and the prospect of stiff prison sentences, secured a guilty plea from a second HealthSouth Corp. finance chief, ratcheting up the pressure on the company's chairman and chief executive, Richard M. Scrushy, Thursday's Wall Street Journal reported.

William T. Owens, HealthSouth's chief financial officer, pleaded guilty to fraud charges and faces a maximum of 20 years in prison for filing a false certification of financial statements with the Securities and Exchange Commission. He faces additional prison time for two other charges. Last week, Weston L. Smith, a former chief financial officer at the Birmingham, Ala., company, pleaded guilty to similar charges of conspiracy to commit wire fraud and securities fraud. He faces a maximum of 10 years in prison for his false certification of results.

The Justice Department said these false-certification charges are the first under the Sarbanes-Oxley Act, which was passed last year in a bid to overhaul corporate governance after a slew of accounting scandals. The SEC, in a civil complaint last week, accused HealthSouth and Mr. Scrushy of overstating earnings by $1.4 billion since 1999. But government investigators contend the earnings manipulation began shortly after Mr. Scrushy took HealthSouth public in 1986.

Mr. Scrushy could face similar criminal charges because he certified HealthSouth's results. He couldn't be reached for comment Wednesday. When asked by SEC attorneys earlier this month in a deposition about whether he ever instructed employees to change the company's financial results, he replied, "Oh absolutely not."

Meanwhile, according to people familiar with the situation, the Justice Department is also looking at Michael D. Martin, HealthSouth's finance chief from 1997 until 2000, and his predecessor, Aaron Beam Jr., one of the company's founders and chief financial officer from 1984 through 1997. Messrs. Martin and Beam couldn't be reached for comment Wednesday.


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