- The Washington Times - Monday, February 14, 2005

BIRMINGHAM, Ala. (AP) — The defense in Richard Scrushy’s corporate fraud trial sought to poke holes yesterday in the testimony of a key witness who contends that the fired HealthSouth chief executive officer was behind a scheme to overstate earnings.

Under cross-examination by Scrushy attorney Jim Parkman, former HealthSouth finance chief Bill Owens conceded that Mr. Scrushy never attended big meetings of a group called “the family,” which carried out the fraud, and that he hadn’t previously identified Mr. Scrushy as being a member at all.

Also, jurors heard about the cloak-and-dagger mood at HealthSouth, where meetings were moved to homes and cars amid worries of electronic eavesdropping. And the defense tried to refute Owens’ testimony that Mr. Scrushy knew a company financial announcement in 2002 was false.

The questioning came in the ninth day of testimony by Owens, among 15 former HealthSouth executives who have pleaded guilty in what prosecutors describe as a $2.7 billion overstatement of earnings from 1996 through 2002.

The defense says Owens was the “godfather” of a group known as “the family,” which inflated earnings on its own and hid the crime from Mr. Scrushy for years.

In sometimes combative questioning, Mr. Parkman brought out that Mr. Scrushy never met with “the family”, as the group of executives worked for years to inflate HealthSouth earnings to meet Wall Street earnings forecasts.

“Mr. Scrushy never attended a meeting with multiple people there,” Owens said.

But Owens testified that anyone who was involved in the fraud was a member of the group in his mind, so the size of the meeting didn’t matter.

“A meeting between he and I discussing the fraud was a meeting of ‘the family,’ ” Owens said.

“No,” Mr. Parkman responded. “Yes, it was,” Owens answered.Owens admitted that he hadn’t previously referred to Mr. Scrushy as being a member of “the family,” referring to him before only as a “co-conspirator.”

In plodding and sometimes confusing questioning, Mr. Parkman also asked Owens about a Medicare rule change that reduced the rehabilitation giant’s income by millions three years ago. The change cut the amount of money that HealthSouth would receive from Medicare for treating thousands of rehabilitation patients at its centers nationwide.

Owens testified that he, Mr. Scrushy and another executive knew the true impact of the rule change would be only about $15 million to $20 million. But the company fraudulently announced a $175 million impact as a way to reduce anticipated earnings and begin ending years of falsely inflated earnings reports, he said.

During cross-examination, Mr. Parkman produced a memo from Owens to Mr. Scrushy and suggested that it indicated the rule change could reduce income even more than the $175 million that HealthSouth claimed publicly.

After Owens testified that the document was the only memo written about issues involved in the fraud, Mr. Parkman asked why there was no explicit mention of a crime.

“If I’m going to put something on paper, I’m not going to use the words ‘fraud’ and ‘illegal,’ ” Owens said.

In nine days of testimony, Owens has portrayed Mr. Scrushy as being at the heart of a conspiracy to overstate HealthSouth earnings. The government says Mr. Scrushy made millions off the fraud because the overstatement kept his stock prices high.

Mr. Scrushy 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 2002 Sarbanes-Oxley Act.

Mr. Scrushy could get what amounts to a life sentence and have to forfeit as much as $278 million in assets if convicted.

In another trial yesterday, lawyers for two of the three former top Enron Corp. executives facing trial in the government’s investigation of the company’s collapse say they can’t face a jury before the second half this year because of conflicts.

In a filing made public yesterday in Houston, Daniel Petrocelli, lead trial lawyer for former Enron CEO Jeffrey Skilling, reiterated that September would be the “very earliest” his team could be ready. Prosecutors have said the government wants a September trial.

Reid Weingarten, leader of the legal team for former top Enron accountant Richard Causey, said in a separate filing last week that he would propose a Dec. 1 trial to ensure adequate time to prepare.

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