- The Washington Times - Tuesday, March 8, 2005

From combined dispatches

HealthSouth Corp. founder Richard Scrushy’s lawyer yesterday sought to portray ex-finance chief Michael Martin as a deceitful and violent executive who hid a $2.7 billion fraud at the company from his former boss.

Mr. Martin, who pleaded guilty to his role in the accounting fraud, told jurors Mr. Scrushy knew the company would make 20 cents a share in 1998, not the $1.09 he told Wall Street analysts. Mr. Scrushy’s attorney, Jim Parkman, yesterday attacked Mr. Martin, a key government witness at Mr. Scrushy’s fraud trial, suggesting that he and others were the masterminds of the fraud.

Mr. Martin is the third former HealthSouth chief financial officer to testify that Mr. Scrushy, a detail-oriented chief executive, directed the fraud at the largest U.S. rehabilitation hospital chain. Mr. Parkman said Mr. Martin and other executives withheld expense figures from budget reports reviewed by Mr. Scrushy.

“That’s why he couldn’t tell what was happening,” when the company failed to meet earnings estimates in 1998, Mr. Parkman said at the trial in federal court in Birmingham, Ala. “You all planned it that way so he wouldn’t know what the true picture was?” Mr. Martin said he gave Mr. Scrushy reports that included detailed financial information.

Mr. Scrushy denies participating in the seven-year scheme to inflate HealthSouth’s earnings to meet Wall Street expectations and prop up the company’s share price. Fifteen persons, including Mr. Martin and Bill Owens, another former HealthSouth CFO, have pleaded guilty to fraud charges.

“So you told [Mr. Scrushy] everything going on about this fraud?” Mr. Parkman asked the former finance executive. “I did,” Mr. Martin said.

As the trial moved into its seventh week, Mr. Parkman questioned Mr. Martin about a confrontation the ex-CFO had with Leif Murphy, a former company treasurer, who quit HealthSouth after uncovering the fraudulent accounting in 1999.

The pair came to blows during Mr. Murphy’s send-off party at a Birmingham bar and Mr. Martin acknowledged that he sucker-punched his friend and former colleague. Mr. Parkman used the incident to suggest that Mr. Martin was volatile.

“You ever tell anyone you’d like to kill them?” Mr. Parkman asked. Mr. Martin responded, “I have a history of a high temper; I probably told a couple of people I’d kill them.”

In separate court action yesterday:

• Jurors evaluating accounting fraud charges against former WorldCom Inc. Chief Executive Officer Bernard Ebbers ended their third day of deliberations without a verdict after asking to review his testimony.

During seven hours of deliberation yesterday, the jury in federal court in New York also asked to examine testimony from two ex-WorldCom accountants who testified for the prosecution. Mr. Ebbers is accused of leading an $11 billion fraud that helped drive the company into the biggest bankruptcy in U.S. history.

• Tyco International Ltd.’s directors never asked for the final version of an employee-relocation plan that former executives L. Dennis Kozlowski and Mark Swartz are accused of misusing, ex-Treasurer Barbara Miller testified.

The witness, ex-Treasurer Barbara Miller, who helped draft the plan, said in cross-examination yesterday at Mr. Kozlowski and Mr. Swartz’s fraud and larceny trial that no director asked for a final version once the board’s compensation committee approved an outline in August 1995. Defense lawyers say their clients didn’t try to hide the changes.

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