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Apr 21, 2003 | New York Post

A hearing over whether fired HealthSouth Corp. CEO Richard M. Scrushy should be allowed access to his vast fortune has become a mini-trial into the $2.5 billion accounting scam he allegedly ran.

Now seven days old and with more testimony due, the hearing has turned into an advance airing of the federal government's case accusing Scrushy and the company he founded of repeatedly overstating earnings to meet Wall Street forecasts.

To show a judge it has a good chance of winning the suit and that Scrushy's assets should remain frozen, the government has presented evidence normally reserved for criminal trials including a secretly recorded conversation in which Scrushy discussed the company's financial crisis.

U.S. District Judge Inge Johnson will resume the hearing Wednesday.

HealthSouth describes itself as the largest U.S. provider of outpatient surgery, diagnostic imaging and rehabilitation services. It has about 51,000 employees and almost 1,700 facilities in the United States and abroad.

The Securities and Exchange Commission filed suit last month accusing Scrushy, 50, and the company of overstating earnings by $1.4 billion since 1999. The amount has since ballooned, with the government now alleging $2.5 billion in inflated earnings since 1997.

Scrushy has not been charged with a crime, but his attorneys say they expect him to be indicted soon. U.S. Attorney Alice Martin declined comment on Scrushy but said more charges are expected.

The government opened the hearing saying Scrushy is seeking access to $10 million for living expenses, including four mansions, a 92-foot yacht, 10 other boats, 34 automobiles and two airplanes. Scrushy also sought $30 million to pay a defense team that includes about 12 lawyers and another $30 million for tax payments. The judge already has allowed him $15.2 million to pay taxes due last week.

SEC attorney Bill Hicks said Scrushy might be forced to pay $785 million or more if he loses the lawsuit, so the government wants the court to freeze his assets to ensure the money is available.

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