Securities and Exchange Commission lawyers played a secret recording in court Thursday that appeared to show the former CEO of the USA’s largest chain of rehabilitation hospitals and surgical clinics directed a scheme to boost the company’s profits.
”We just need to get those numbers where we want them to be,” former HealthSouth CEO Richard Scrushy was recorded as telling his top finance executive, William Owens, last month. ”You’re my guy. You’ve got the technology and the know-how.”
That conversation, along with several others played in federal court in Birmingham, Ala., could form the centerpiece of any criminal prosecution of Scrushy.
Although no criminal charges have been filed against Scrushy, eight current or former HealthSouth employees, including Owens, have pleaded guilty to criminal charges stemming from the fraud. Earlier this week, a ninth former executive agreed to plead guilty.
Scrushy and his lawyers appeared in court for the second consecutive day in a bid to persuade U.S. District Judge Inge Johnson to give the former CEO access to $70 million of his fortune. Scrushy’s lawyers say he needs $30 million for legal fees, $30 million for taxes and $10 million for living expenses.
The investigation into HealthSouth, which is the first case in the era of the tough new rules against accounting fraud in the Sarbanes-Oxley Act, has progressed at unusual speed.
On March 19, the SEC accused Scrushy of orchestrating a campaign that boosted HealthSouth’s earnings at least $1.4 billion since 1999. SEC lawyers subsequently persuaded the court to freeze his assets.
Since then, HealthSouth’s board has fired Scrushy and admitted that its earnings had been overstated. The stock has been delisted by the New York Stock Exchange and has plunged in value from about $15 per share a year ago to pennies per share now.
In default on some $350 million in bond payments, HealthSouth is negotiating with lenders to avoid Chapter 11 bankruptcy protection. It said Thursday that its credit line has been extended until May 1.
SEC lawyers introduced the digital recording to convince Johnson that she shouldn’t give Scrushy access to so much money. The SEC has accused Scrushy of selling $175 million in stock since the fraud began.
Before the recording was played, Scrushy’s defense attorney, Thomas Sjoblom of Chadbourne & Parke, sought to undermine its credibility. Sjoblom peppered various FBI agents with questions about how the tape got from Owens, who was wearing a wire when he made the recording, back to the FBI’s offices.
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