Two former HealthSouth Corp. chief financial officers directly implicated company founder Richard M. Scrushy in the company’s huge accounting scandal as they pleaded guilty in the fraud case Thursday.
Michael Martin and Tadd McVay told U.S. District Judge U.W. Clemon that Scrushy was involved in the scheme to inflate earnings. They made the statements while pleading guilty to fraud, conspiracy and filing false financial reports.
Federal investigators say HealthSouth’s earnings were overstated by about $2.5 billion dating back to 1997. In civil charges against the company and Scrushy, they allege that he orchestrated the fraud to ensure earnings met Wall Street expectations as he amassed a personal fortune in stock and compensation.
Martin said Scrushy ordered employees to inflate earnings as long ago as 1993. He said Scrushy, who was fired earlier this year as HealthSouth’s chief executive, ordered him to â€œfixâ€� earnings shortfalls virtually every month during the two years he was CFO.
McVay said he, Scrushy and others discussed overstatements of cash on the company’s balance sheet.
Clemon asked McVay if he signed a false financial statement to enrich himself. McVay answered, â€œIn the sense of keeping my job.â€�
Scrushy, who has not been charged criminally, has denied knowledge of the fraud.
But 11 former HealthSouth executives â€” including all five CFOs the company has had since its 1984 founding have pleaded guilty in the fraud case.
Martin, 42, was CFO from October 1997 to February 2000. McVay, 41, served as CFO from August 2002 until January.
No sentencing date was set. They face possible maximum penalties of $1.25 million in fines and 15 years in prison, but are likely to receive lesser punishment because of their pleas and cooperation with investigators.