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HealthSouth Treas. Pleads Guilty to Fraud

Apr 21, 2003 | AP

HealthSouth Corp. treasurer Malcolm "Tadd" McVay, who was fired last week, has agreed to plead guilty to conspiracy and fraud charges in the growing accounting scandal at the rehabilitation giant, federal prosecutors said Monday.

McVay is the 10th HealthSouth executive to reach a plea deal with the government and the fourth of the company's five former CFOs to be accused in the scheme. McVay, 41, is cooperating with authorities, prosecutors said.

While the investigation is only a month old, U.S. Attorney Alice Martin said it is moving swiftly in part because of the assistance of so many of the corporation's top financial executives.

"Their knowledge of how the fraud was perpetrated and perpetuated make this a very focused search for the truth about this vast accounting fraud," she said in a statement.

McVay faces a maximum sentence of 15 years in prison and fines totaling $1.25 million, but the government could recommend a lighter penalty in return for his help with the case.

Defense attorney J. Don Foster of Mobile said McVay "deeply regrets and apologizes for his actions and poor judgment." HealthSouth spokesman Andy Brimmer said McVay was fired last week.

Martin said more charges were likely. While not accused of any crime, fired HealthSouth chief executive Richard M. Scrushy is the target of a criminal investigation, according to his attorneys.

A former commercial banker, McVay has worked at HealthSouth less than four years. He played a major role in refinancing the company's long-term debt and its bank credit line, according to his corporate biography. He served as CFO from last August through January.

The Securities and Exchange Commission filed a civil lawsuit last month accusing HealthSouth and Scrushy of overstating earnings by $1.4 billion since 1999 to meet Wall Street forecasts. The amount has swelled to $2.5 billion in allegedly faked earnings since 1997 as investigators went further back.

Prosecutors contend a group of top accounting executives called the "family" met to determine how to falsify HealthSouth's accounts. Fraudulent postings known as "dirt" were created to fill the "hole" between analysts' expectations and the company's true performance, the government claims.

"McVay was not part of 'the family' and briefly served in the capacity of chief financial officer of HealthSouth for only one quarter," Foster said.

While 10 of his top subordinates have reached plea deals, Scrushy contends he knew nothing of the fraud until last month, two days before the SEC filed suit and former CFO Weston Smith became the first person to plead guilty.

Smith's wife, Susan Smith, who handled Medicare reimbursement for HealthSouth, also was fired last week, Brimmer said.

Scrushy's attorneys claim another former CFO who briefly served as chief executive, William T. Owens, was the mastermind of the fraud.

A federal court hearing will resume Tuesday in Birmingham on whether a judge should unfreeze Scrushy's assets while the investigation continues.

HealthSouth calls itself the nation's largest provider of outpatient surgery, diagnostic imaging and rehabilitation services. It has about 51,000 employees and almost 1,700 facilities in 50 states and abroad.


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