Scrushy Defense Grills Witness

Richard Scrushy's (search) lawyers tried to discredit the testimony of a former HealthSouth executive Thursday, portraying him as a participant in a huge fraud rather than the innocent outsider he claimed to be.

Attempting to undercut Leif Murphy's testimony that he quit the rehabilitation giant after Scrushy flew into a rage when confronted about inflated earnings, defense attorney Jim Parkman brought out that Murphy once attended a meeting with eight people identified as being in on the scheme.

The defense for Scrushy, HealthSouth's (search) former CEO, in his corporate fraud trial contends a group of executives called "the family" conspired to inflate earnings at HealthSouth and hid it from Scrushy. Prosecutors claim Scrushy was the driving force behind a conspiracy to overstate earnings by some $2.7 billion from 1996 through 2002 to make it appear HealthSouth Corp. was meeting or beating Wall Street forecasts.

"You a member of this family?" Parkman asked Murphy in court Thursday.

"Absolutely not," he responded.

"Did you know about the fraud that was going on at HealthSouth?" Parkman shot back.

"I did not," said Murphy.

A group vice president in treasury at the time, Murphy acknowledged signing a loan document for the rehabilitation giant in 1999 despite suspecting it included bogus numbers.

"I did sign it, but I did not sign it with that in mind," said Murphy. "I regret signing it."

He testified he realized something was wrong with the company's finances after seeing financial statements that, according to previous testimony, normally were viewed only by top executives involved in the fraud.

Murphy has said he quit HealthSouth in 1999 despite being offered $1 million to stay once he figured out the fraud. He testified Thursday that he had two lawyers with him during numerous meetings to discuss his testimony with the FBI, the Securities and Exchange Commission (search) and prosecutors, but he has not been charged with a crime.

Murphy previously testified that Scrushy got visibly angry and yelled after Murphy confronted him in 1999 about financial results that showed HealthSouth's earnings forecasts were based on fabricated earnings.

"The way Mr. Scrushy came into that room and treated me was horrible," said Murphy.

Murphy testified after former HealthSouth finance chief Bill Owens finished 11 days on the stand claiming Scrushy directed the overstatement. Owens is among 15 former HealthSouth executives who have pleaded guilty in the scheme and could testify against Scrushy.

Scrushy is on trial on charges including conspiracy, fraud, money laundering, obstruction of justice and perjury. He also is accused of false corporate reporting in the first case of a CEO being charged with violating the Sarbanes-Oxley Act (search).

Scrushy could be sentenced to what amounts to a life term and ordered to forfeit as much as $278 million in assets if convicted.