Scrushy: I'm Learning of Fraud for 1st Time

BIRMINGHAM, Ala. – After listening to a former employee testify about how the $2.7 billion accounting fraud was carried out at HealthSouth Corp. (search) , former Chief Executive Richard Scrushy (search) said on Friday he was hearing the details for the first time.

It is not known whether Scrushy will take the stand in his own defense, but outside the Birmingham courthouse after testimony by prosecution witness Kenneth Livesay, he repeated his team's contention that he was unaware of the fraud and that it was carried out by underlings without his knowledge.

"I just learned so much today," Scrushy told Reuters. "I learned who was the engineer. This is putting a light on who, where and how. It is very sad.

"They had so many opportunities to tell me. Why didn't they tell me?" Scrushy asked.

His statements away from the jury and prosecutors contradict testimony by former high-ranking finance executives who have said Scrushy had full knowledge of the fraud and had ordered his lieutenants to change financial reports to meet Wall Street expectations.

Prosecutors have said Scrushy's knowledge of the fraud is a key element of their case against him. He is facing 58 criminal charges, accused of orchestrating the $2.7 billion fraud from 1996 through 2002 for his own financial gain.

Livesay, one of 15 former HealthSouth executive who have pleaded guilty to fraud charges, under cross examination explained how the conspirators would meet each quarter and lay out the actual financial earnings and the numbers they planned to report. They would then try to figure out how to spread phony entries around to avoid suspicion.

An assistant controller at the time of his participation in the fraud, Livesay had previously testified that HealthSouth's debt was mounting because it was paying taxes on the reported fraudulent earnings rather than the profit the company was actually making.

Livesay testified that he brought that to Scrushy's attention in early 1999, and that the company began taking bogus charges in an attempt to cut the tax burden.

"It breaks my heart. We would have been more profitable without the fraud," Scrushy said.

"It doesn't make financial sense. It was very dumb and I've got a lot of questions why," Scrushy said.