HEALTHSOUTH CORP. Executives tab founder during pleas to fraud

HealthSouth CFOs say they were ordered to fix books.
BIRMINGHAM, Ala. (AP) -- HealthSouth Corp. founder Richard M. Scrushy was directly involved in the company's scheme to inflate earnings, two former chief financial officers told a federal court.
Michael Martin and Tadd McVay made the statements Thursday while admitting to charges of conspiracy to commit fraud and filing false financial reports.
Federal investigators say HealthSouth's earnings were overstated by about $2.5 billion dating back to 1997. In civil charges against the company and Scrushy, they allege he orchestrated the fraud to ensure earnings met Wall Street expectations as he amassed a personal fortune in stock and compensation.
Martin told U.S. District Judge U.W. Clemon he and Scrushy first discussed falsifying numbers in 1993 when Martin was an executive in the accounting department.
How it happened
"We were going to miss earnings and we had to make an acquisition to make it up," said a nervous Martin, his voice cracking and his forehead beaded with sweat.
Martin, 42, said Scrushy told him to "fix" earnings shortfalls almost every month from October 1997 through February 2000 -- the time Martin served as CFO.
"If we weren't making the numbers he would say, 'Go figure it out,"' said Martin. He said he learned of the amount of the overstatement after being promoted from treasurer to CFO.
Scrushy gave orders to misstate earnings during meetings with Martin; another former CFO who has pleaded guilty, William T. Owens; and an executive who has since left the company, Martin said.
Martin said he resigned from HealthSouth after he became "unwilling to engage in this behavior."
Another testimony
McVay, 41, said he discussed overstatements of cash on the company's balance sheet with Scrushy and others last year after he became CFO. He estimated the amount was between $200 million and $400 million.
McVay said he knew the company's numbers were faked when he signed a financial report for the SEC in November. He said he signed a false financial statement "in the sense of keeping my job."
McVay was CFO from August 2002 until January.
Scrushy has denied knowledge of the fraud and has not been charged with a crime. But 11 former HealthSouth executives -- including all five CFOs the company has had since its 1984 founding -- have agreed to plead guilty in the fraud case.
No sentencing date was set. Martin and McVay face possible maximum penalties of $1.25 million in fines and 15 years in prison. Their plea agreements and cooperation with investigators will likely result in lesser punishment.
The company's first CFO and co-founder, Aaron Beam, agreed last week to plead guilty. A hearing is set for Monday for Beam, who served from 1984 until 1997.