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Healthsouth Fraud Nets 10th Guilty Plea

Apr 22, 2003 | USA TODAY

Another former chief financial officer will plead guilty in the ever-expanding HealthSouth fraud case.

Alice Martin, the U.S. Attorney for the Northern District of Alabama, announced Monday that HealthSouth Treasurer Malcolm McVay has admitted being part of a conspiracy to manipulate the company's quarterly earnings.

From last August until January, McVay served as HealthSouth's CFO. According to his attorney, J. Don Foster, McVay took part in the fraud only during that time, not during the previous three years he served as HealthSouth's treasurer.

McVay's decision to plead guilty and cooperate with the government brings the number of HealthSouth executives who have confessed their involvement in the scandal to 10. Of that total, four served in the position of CFO.

''He's very sorry and deeply regrets what's happened,'' Foster said. This latest plea comes as the U.S. Attorney's office is considering filing criminal charges against HealthSouth founder and former CEO Richard Scrushy, who was accused of fraud last month by the Securities and Exchange Commission.

The SEC charges, filed on March 19, allege that Scrushy orchestrated a campaign to inflate HealthSouth's earnings by more than $1.4 billion since 1999. Prosecutors have since amended that number by $1.1 billion, charging that HealthSouth executives reported $2.5 billion in bogus earnings over the past decade.

Shortly after filing the charges, the SEC succeeded in freezing Scrushy's assets. Over the past two weeks, Scrushy's lawyers have been doing battle with the SEC in federal court in Birmingham, Ala., trying to get access to $40 million from Scrushy's fortune to pay for legal advice and living expenses.

To support its view that Scrushy should not be allowed access to those funds, the SEC has played portions of secretly recorded conversations between Scrushy and his right-hand man, William Owens. The conversations don't conclusively prove that Scrushy was the architect of the earnings-manipulation scheme, but they suggest that he was familiar with it.

Scrushy's lawyers insist that their client learned of the earnings manipulation only on March 17, a day before the recordings were made. Monday, they said the fact that yet another HealthSouth CFO was pleading guilty came as no surprise. ''It's exactly what we were expecting,'' said Thomas Sjoblom of Chadbourne & Parke. ''These are the guys who were the pilots of the airplane.''

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