- The Washington Times - Wednesday, November 12, 2003

BIRMINGHAM, Ala. (AP) — Attorneys for the first five persons set for sentencing in a massive fraud at HealthSouth Corp. objected yesterday to prosecutors’ estimates of how much money stockholders lost in the scam.

Based on a formula revealed in court, the government could argue that shareholders lost more than $1.5 billion in the fraud, in which 15 former HealthSouth executives have agreed to plead guilty. Fired CEO Richard Scrushy has been indicted in the case and has pleaded not guilty.

But the government’s method of estimating the loss was flawed and resulted in a figure far too high, according to attorneys for five former executives.

The government’s exact estimate, prepared by probation officials, was not revealed in court. U.S. District Judge Inge Johnson will use it later in computing sentences for the defendants.

Emery Harris, former assistant controller at HealthSouth, faces a maximum penalty of 15 years imprisonment and $1.5 million in fines.

Also scheduled for sentencing were former corporate Vice Presidents Angela C. Ayers, Cathy C. Edwards and Rebecca Kay Morgan, and Virginia B. Valentine, a former assistant vice president.

Mr. Harris testified that he approached two superiors in August 2002 on behalf of himself and the four women and said they would no longer participate in the fraud because of concern over the just-passed Sarbanes-Oxley bill, which provides stiff penalties for false financial reporting.

“It became apparent to us that anyone who participated in any fraud … could be held liable,” Mr. Harris said.

It was after Mr. Harris’ meetings with William Owens and Weston Smith — both former chief financial officers at HealthSouth — that executives began planning a way to clean up the company’s books without detection, according to court documents.

Mr. Owens and Mr. Smith are among the former executives who have agreed to plead guilty and assist prosecutors, who contend Mr. Scrushy directed the fraud to make it appear HealthSouth earnings were meeting analysts’ forecasts.

Mr. Scrushy surrendered last week after being indicted on 85 counts in the $2.7 billion fraud. He is free on $10 million bond.

HealthSouth is the largest U.S. provider of outpatient surgery, diagnostic imaging and rehabilitation services. The company has some 50,000 employees and about 1,700 sites in all 50 states and overseas.

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