Ex-HealthSouth CFO Accounting Fraud. A former top aide to HealthSouth founder Richard Scrushy testified in federal court Friday about a tape recording he made of a conversation they had a day before the government accused Scrushy and the company of massive accounting fraud.
While questioning former chief financial officer William T. Owens, defense attorney Tom Sjoblom suggested that Owens was behind the scandal that has shaken the rehabilitation giant.
Owens testified that his wife was worried about him going to prison for signing “phony financial statements,” confirming what he said on the tape recording made last month.
Asked whether Scrushy told him to “do the right thing,” Owens wasn’t allowed to answer because of an objection by government attorneys.
Sjoblom honed in on the company’s finances and structure in dozens of subsequent questions to Owens, who repeatedly invoked his constitutional right against self-incrimination.
“Mr. Owens, Mr. Scrushy built this company with his sweat and blood before he knew you, didn’t he?” Sjoblom asked. The judge didn’t let Owens answer.
“The reason we’re all here, Mr. Owens, is because of you, isn’t it?” Sjoblom asked later. Owens wasn’t allowed to answer.
Sjoblom suggested that Owens who became CEO last August after Scrushy temporarily stepped aside was mad about taking a pay cut when Scrushy returned and Owens resumed his job as CFO. Sjoblom said the cut was from $1.8 million to $1 million.
The defense attorney asked Owens if he was demoted to CFO because he was part of a “coup” to remove Scrushy as chairman while Owens was CEO. Owens took the Fifth.
partial unfreezing of assets
Attorneys seeking to lift a freeze on Scrushy’s assets subpoenaed Owens to testify about the tape recording. U.S. District Judge Inge Johnson allowed the testimony over the government’s objections and granted a partial unfreezing of assets so Scrushy can pay income taxes. Johnson did not disclose the amount of money he released, but Scrushy’s unpaid tax liability for this year previously was estimated in court to be as much as $17 million.
Court adjourned for the weekend after four hours of testimony Friday and was scheduled to resume Monday morning.
In the recording, played in court Thursday, Scrushy and Owens were heard discussing fears of going to jail and how to clean up the company’s finances.
“I think we ought to go down fighting,” Scrushy was heard to say. Scrushy, fired last week as chief executive and chairman, also made a reference that implied Owens “engineered” false numbers.
Owens is among nine former HealthSouth executives who have reached plea deals on federal fraud charges arising from an accounting scam the government contends was orchestrated by Scrushy.
Neither Scrushy nor HealthSouth has been charged with a crime, but Sjoblom said in court he expects Scrushy to be indicted soon.
Sjoblom formerly was an attorney for the Securities and Exchange Commission, which sued Scrushy and the company on March 19. The government accuses them of overstating HealthSouth earnings by more than $2.5 billion since 1997 to meet Wall Street expectations and keep stock prices high.
Scrushy has denied any wrongdoing through his attorneys. He repeatedly cited his right to avoid self-incrimination in refusing to answer questions earlier in the hearing.
The judge previously froze Scrushy’s assets temporarily, but government lawyers said he was seeking access to $70 million — $10 million to finance a lifestyle that includes four massive homes, a yacht and airplanes, and $60 million to pay taxes and his lawyers.
The hearing included testimony about evidence because government lawyers said they had to show they could win the lawsuit to convince the judge to maintain the freeze on Scrushy’s assets.
Reeling financially from the scandal, HealthSouth was unable to make a $367 million payment on bonds and interest earlier this month. While lenders could force bankruptcy, HealthSouth said Thursday banks had agreed to delay any action until May 1 as it tries to come up with the money.
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