Alabama’s collapsed rehab chain HealthSouth is turning out to be a smokehouse for cooked books with its third CFO being hit with criminal charges.
Michael Martin, who was charged yesterday with helping mastermind a scheme to inflate company profits by $2.5 billion is also the ninth former HealthSouth executive snared in the scandal.
Martin, 42, was CFO from 1997 to 2000 and is helping investigators untangle the complex scam allegedly run by company founder Richard Scrushy for nine years.
Eight former HealthSouth executives have pleaded guilty to various crimes since in the last three weeks.
Martin had planned to plead guilty yesterday, but a federal judge balked at the way U.S. Attorney Alice Martin (no relation) had leaked the plea deal before it got into his courtroom.
Two other former CFOs, William Owens and Weston Smith, and an assistant controller, Emery Harris, have already pleaded guilty in the case. Owens was controller while Martin served as CFO.
Many of the executives played in a country-western band with Scrushy, a frustrated musician who spent many of his waking hours promoting his band and two other bands he founded.
Investigators said the company’s accounting staff met secretly to devise ways to support Scrushy’s inflated earnings goals. The sessions were called “family” meetings, court papers said.
Workers filled the “gap” or “hole” for Scrushy’s phantom goals with phony numbers the group called “dirt,” the papers said.
HealthSouth, the nation’s largest operator of spa-like rehab centers, has defaulted on $367 million in bond payments and is trying to avoid bankruptcy.
Martin worked with Scrushy for more than a decade, and helped make $7 billion in acquisitions of small health chains to double the size of HealthSouth.
After leaving HealthSouth two years ago with his secrets, Martin became a co-founder and managing director of CannonGate Partners LLC, a private equity firm in Birmingham specializing in health-care and technology investments.
While at HealthSouth, Martin also helped launch Capstone Capital Corp., a health-care real estate investment trust that did a $100 million IPO initial public offering in 1994. The firm was eventually bought in 1998 for $900 million by Healthcare Realty Trust Inc.