Ex-HealthSouth President Bennett Indicted for Fraud

Former HealthSouth Corp. president and director James P. Bennett (search) was indicted Thursday for what prosecutors say was a massive fraud at the rehabilitation giant, even as the trial of former CEO Richard Scrushy (search) continued.

Bennett, 47, was accused of fraud, conspiracy, insider trading, money laundering and lying to the FBI in a scheme in which he sold company stock worth about $17.4 million, according to a statement from prosecutors.

Testimony in Scrushy's trial has indicated that Bennett knew of the scam, in which 18 people have now been charged. Fifteen have reached plea deals and are expected to testify in Scrushy's trial.

Besides prison time and $33 million in fines if convicted on all 39 counts, prosecutors are seeking $28 million in assets that they claim Bennett made from the alleged conspiracy.

Defense attorney Jim Henry said Bennett "was not involved, in any form or fashion, with any fraud of other wrongdoing at HealthSouth."

"He will plead not guilty, and is looking forward to the opportunity to clear his name," Henry said.

Bennett, who worked at HealthSouth (search) from 1991 until 2000, was president and chief operating officer from 1995 until he left. He joined the HealthSouth board in 1993.

Bennett's indictment was announced as a one-time colleague, former HealthSouth controller and chief financial officer Bill Owens, began a third day on the stand.

Using a marker and easel, Owens told jurors about the company's various financial statements. He also described a once-close relationship with Scrushy, saying he played drums in rock and country bands fronted by Scrushy.

"(We) started out as a garage band," said Owens, one of five HealthSouth CFOs who admitted participating in the fraud while working under Scrushy. "We became, I think, pretty good over time."

Wednesday, Owens testified that Scrushy feared a shareholder lawsuit and encouraged employees to continue the fraud after it began in 1996 so he'd be able to sell $100 million of company shares.

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

Prosecutors allege Scrushy, 52, got rich from stock sales, bonuses and salary by directing a fraud that led to the overstatement of HealthSouth earnings 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.

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, passed in 2002.

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