Former CFO: Scrushy Ordered HealthSouth Books Cooked

Former HealthSouth Corp. (search) Chief Executive Richard Scrushy (search) ordered accounting executives to falsify the company's books to meet Wall Street's earnings targets, a former chief financial officer said in court Wednesday.

Aaron Beam, chief financial officer of the health-care company from 1984 through 1997, testified that he and William Owens in mid-1996 created revenue that did not exist after falling short of profit targets since "aggressive accounting" was not enough.

Richard Smith, a prosecutor in the criminal fraud trial against Scrushy, asked why.

"Because Richard Scrushy told us to," said Beam, who was a co-founder of HealthSouth with Scrushy.

Scrushy shook his head side to side with a slight smile on his face.

Scrushy is facing up to 450 years in prison and $36 million in fines and the potential forfeiture of property if he is convicted of his accused role in masterminding a $2.7 billion accounting fraud.

Beam started testimony in the U.S. District Court in Birmingham (search) on Tuesday describing Scrushy as a "micromanager."

Scrushy's attorneys claim that Scrushy had no knowledge of the accounting fraud, which led to guilty pleas from more than a dozen executives at the operator of facilities for physical therapy, outpatient surgery and X-ray services.

In 45 minutes of testimony by Beam, Scrushy attorney Arthur Leach made at least 10 objections. U.S. Judge Karon Bowdre ordered the attorneys to the bench five times during the contentious period.

Smith asked Beam about who was involved in falsifying the accounts.

"Richard Scrushy, Bill..." Beam said.

Leach objected, and the objection was sustained.

During the testimony, Beam said he and Owens, who also pleaded guilty to fraud charges for his role, met with Scrushy in 1996.

"We did a lot of estimating. We changed estimates with aggressive accounting," Beam said. "It was with his (Scrushy's) blessing."

At one point, Beam said he told Scrushy in 1996: "We're short. We've pushed it to the limit. We're not making our numbers"

Beam recalled that Scrushy told him: "It is not an option to miss your numbers. Fix the numbers."

Smith asked if Beam told Scrushy that the numbers could not be legitimately changed.

"Yes," Beam responded.