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New Guilty Plea In HealthSouth Case

Apr 24, 2003 | FT.COM

All of the five men who served as chief financial officer at HealthSouth have now been charged in the alleged $2.5bn fraud threatening to bring down the US healthcare company.

Aaron Beam, a founder and the longest-serving CFO, on Thursday agreed to plead guilty to charges of bank fraud and making false representations to HealthSouth's lenders, the government said.

The bank fraud charge has a maximum sentence of 30 years and a fine of as much as $1m.

Mr Beam, CFO from 1984 until October 1997, is the 11th person to agree to plead guilty since the scandal broke on March 19.

On that day the Securities and Exchange Commission filed a complaint against HealthSouth and its former chief executive Richard Scrushy for inflating earnings by $1.4bn between 1999 and 2002. The total fraud has since increased to $2.5bn, dating back to 1997.

In the charges made on Thursday, the government claims that, starting in April 1996 and until October 1997, Mr Beam "and others, including HealthSouth's chief executive officer at the time, devised a scheme to obtain loans and credit from Birmingham-based AmSouth Bank by filing false and fraudulent financial information with the bank".

Mr Scrushy, who has been fired and asked to resign as chairman, has also been charged with insider trading but has not yet faced a criminal indictment. His attorneys say he is innocent.

Proceedings to freeze his assets at the SEC's request have turned into a mini-trial over the past few weeks, with Thomas Sjoblom, a lead attorney for Mr Scrushy, putting several former HealthSouth executives on the stand.

Mr Scrushy's defence says he was the target of a failed coup orchestrated by William Owens, another ex-chief financial officer who is co-operating with the government. A secretly recorded conversation between the two men was played in court.

At the hearing on Wednesday, a partner at Ernst & Young, HealthSouth's former auditor, said the firm had been alerted to potential accounting problems as far back as June last year.

James Lamphrom said a HealthSouth employee had written to the E&Y audit team suggesting that there could be problems. E&Y had checked out the allegations, Mr Lamphrom said, and determined that there had been no wrongdoing.

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