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HealthSouth Sees Another Executive Plead Guilty

Mar 27, 2003 | USA TODAY

In a securities fraud case that is proceeding at a stunning pace, a second senior HealthSouth executive pleaded guilty Wednesday to fraud charges stemming from the company falsifying its financial statements.

William Owens, 44, former head of financial operations at the rehabilitation hospital chain, pleaded guilty to conspiracy to commit wire fraud and securities fraud and admitted that he knowingly and willingly certified HealthSouth's false earnings statements in violation of the Sarbanes-Oxley Act.

One week ago, former CFO Weston Smith pleaded guilty to similar charges in federal court in Birmingham, Ala. Also last week, the Securities and Exchange Commission accused HealthSouth and its CEO Richard Scrushy of inflating the company's earnings by more than $1.4 billion since 1999.

HealthSouth responded by placing Scrushy and Owens on administrative leave. With Owens' plea, HealthSouth is moving to terminate his employment.

After the SEC's charges, HealthSouth said its previous financial statements could no longer be relied upon. With total debt of $3.2 billion, $345 million of which is due next week, the company could be forced to seek bankruptcy protection from its creditors.

Trading in the company's stock, which had sunk to $3.91 from its yearly high of $15.90 before the scandal was revealed, was suspended for several days, and the New York Stock Exchange has announced plans to delist it. In off-exchange trading, the stock closed at 11 cents a share Wednesday.

Despite the fast start to the criminal probe, Alice Martin, the U.S. Attorney for northern Alabama, promised that she will investigate every aspect of the fraud at HealthSouth. Scrushy, the company founder and CEO, is believed to be at the top of her list.

And with two top financial officers pleading guilty, legal experts say Martin is in a strong position to secure other guilty pleas throughout HealthSouth.

''Based on what's already public, and the guilty pleas of the two CFOs, for the government this case will be like hitting a piñata without wearing the blindfold,'' says Jacob Frenkel, a former SEC attorney now with Smith Gambrell & Russell.

Asked whether she would investigate the role played by HealthSouth's auditor, Ernst & Young, and its lead investment bank, UBS Warburg, Martin said, ''I'm looking at anyone who had any knowledge of wrongdoing at HealthSouth.''

UBS spokeswoman Denise Kazmier said the firm had no comment. Ernst & Young issued a statement saying it is cooperating fully with the criminal and regulatory probes, but has not been informed it is being investigated for what happened at HealthSouth. Scrushy did not return calls for comment.

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