“If you fix it now, you’ll get killed,” HealthSouth Corp.’s then Chief Executive Richard Scrushy told his chief financial officer in a secretly recorded talk about financial statements the day before the CEO and the company were charged with accounting fraud.
“But if you fix it over time, if you go quarter to quarter, you can fix it,” said Scrushy, according to a recording then CFO William Owens made at the FBI’s request. “Look at how profitable this company is. Do we really want to trash all this?”
Scrushy made no direct admission of wrongdoing during the few minutes of the barely audible recording that was played at a hearing on whether to extend a freeze on his assets. Scrushy, fired by HealthSouth, the largest U.S. operator of rehabilitation hospitals, has not been charged with a crime. Prosecutors are investigating allegations he ran an accounting-fraud conspiracy.
The excerpts from a 4 Â½-hour conversation were part of the evidence that U.S. Securities and Exchange Commission lawyers presented at a hearing Thursday to block a proposal by Scrushy to unfreeze his assets. U.S. District Judge Inge Johnson, who froze the assets, listened to hours of arguments about whether to admit the recording before she decided to allow it in to evidence.
Scrushy, charged with fraud and insider trading by the SEC, has denied wrongdoing and blames his subordinates for the alleged fraud, according to his attorney, Donald V. Watkins. Scrushy filed court papers this week that said the asset freeze was “crippling his ability to mount an effective defense.”
Eight former HealthSouth executives have pleaded guilty to accounting fraud, some implicating Scrushy in a conspiracy to inflate earnings.
A ninth employee, former Chief Financial Officer Michael Martin, agreed to plead guilty to conspiracy.
“Engineer your way out of what you engineered your way into,” Scrushy said to Owens at one point of the recording.
Owens, who recorded the conversation on a digital device, is aiding prosecutors and the SEC. He pleaded guilty to accounting fraud a week after the recording, implicating Scrushy.