Ex-CFO: Scrushy Ordered HealthSouth Fraud

With earnings sagging at HealthSouth Corp., then-chief executive Richard Scrushy (search) ordered aides to continue a huge fraud because he planned to sell $100 million in stock and "didn't want to get sued," a former finance chief testified Wednesday.

The ex-chief financial officer, Bill Owens, also described Scrushy as a master salesman who ruled with fear and intimidation that was great enough to make others go along with a scam prosecutors have described as a $2.7 billion earnings overstatement.

Owens, one of 15 former executives who admitted guilt in the scheme, spent a second day on the stand in Scrushy's federal trial on corporate fraud charges.

Testifying for the prosecution under a plea deal, Owens said Scrushy told him in late 1997 that he planned to sell $100 million in stock and wanted to know if a fraud that began a year earlier could continue without being detected.

"He wanted to make sure I felt like I could get through the audit," said Owens, adding: "As always, I told him we were going to do our best."

Prosecutors allege Scrushy, 52, got rich from stock sales, bonuses and salary by directing a fraud that led to the overstatement of HealthSouth (search) earnings by some $2.7 billion from 1996 through 2002.

The defense contends Owens and other subordinates in HealthSouth's corporate accounting offices lied to Scrushy for years, leaving him unaware of the conspiracy.

In court Wednesday, Owens said Scrushy directed him and another former finance chief, Mike Martin, to keep the fraud going for another year because he feared a shareholder suit if stock prices dropped and "didn't want to get sued."

Evidence has shown the fraud continued through 2002. Owens said Scrushy was behind it from the start and received regular reports showing the company's true financial condition wasn't good enough to meet Wall Street earnings estimates.

A handful of workers who saw those weekly reports were ordered to destroy the documents because they had "incriminating information," he said. Still, some survived: The prosecution showed jurors what Owens identified as page after page of the documents.

Owens called Scrushy a "very charismatic salesman" who could get people to do most anything, including participate in the fraud.

"I think Richard may be the best salesman I've ever met," said Owens. "He was able to convince me to do things I knew were wrong."

Scrushy "managed greatly by fear and intimidation," said Owens, corroborating testimony of another former CFO, Aaron Beam, who described being scared of Scrushy for years.

Scrushy presided over weekly meetings of corporate officers in which he would "call people out" if he didn't like something, he said. Scrushy alone decided who became an officer and how much they made, according to Owens.

Jurors have yet to hear recordings that Owens secretly made for the FBI (news - web sites) of his talks with Scrushy in March 2003 shortly before the raid that ultimately resulted in Scrushy's indictment.

Scrushy, HealthSouth's primary founder in 1984, is charged with conspiracy, fraud, money laundering, obstruction of justice and perjury. He also is accused of false corporate reporting in the first test against a CEO of the Sarbanes-Oxley Act (search), passed in 2002.

If convicted, he could receive what amounts to a life sentence. Prosecutors also are seeking $278 million in assets.