- The Washington Times - Wednesday, March 9, 2005

BIRMINGHAM, Ala. (AP) — The defense for fired HealthSouth Corp. Chief Executive Officer Richard Scrushy depicted a main prosecution witness yesterday as a rich deal maker on a “mood-altering” drug but failed to shake his assertion that Mr. Scrushy was in on a $2.7 billion fraud.

Under tough cross-examination, Scrushy attorney Jim Parkman showed a mostly blue-collar jury that former Chief Financial Officer Mike Martin was worth millions, even after paying $2.4 million in penalties from the fraud.

Martin is one of 15 executives who have pleaded guilty to fraud charges tied to seven years worth of inflated earnings at HealthSouth, the largest U.S. rehabilitation hospital chain. Mr. Scrushy denies wrongdoing and accuses another former chief financial officer, William Owens, of masterminding the scheme to prop up the company’s share price by faking earnings from 1996 to 2003.

Mr. Parkman got Martin to admit to taking Lexapro, described by manufacturer Forest Laboratories Inc. as a drug for treating depression and anxiety disorders.

“You know it’s a mood-altering drug, don’t you?” Mr. Parkman asked.

“I don’t think of it as a mood-altering drug,” countered Martin, who acknowledged having a volatile temper even as he remained calm and soft-spoken on the stand.

Martin stuck by earlier testimony that Mr. Scrushy was fully aware of the scheme to overstate earnings and saw printed reports that showed revenue falling short of expectations as expenses spiraled out of control.

“Did anyone hide expenses from [Mr. Scrushy] while you were CFO?” asked prosecutor Richard Smith.

“No, I went over these numbers with him every quarter,” Martin said.

Prosecutors accuse Mr. Scrushy of leading a fraud to inflate HealthSouth earnings from 1996 through 2002 to make it appear that the rehabilitation chain was meeting Wall Street estimates. Mr. Scrushy made millions off the scheme in salary, bonuses and stock sales, they contend.

The defense says Martin and other Scrushy subordinates committed the fraud on their own and got rich climbing through the corporate ranks.

In Martin’s sixth day on the stand, Mr. Parkman asked him about his prescription for Lexapro. Martin said a doctor had prescribed the medication for “stress and anxiety” while he was experiencing high blood pressure in summer 2003 — after the HealthSouth scandal became public — and that he is still taking it.

Mr. Parkman also brought out that Martin had cooperated with plaintiff’s attorneys involved in shareholder lawsuits over the HealthSouth fraud, suggesting that he did so in exchange for a favorable settlement of his part of the lawsuits.

“That is entirely wrong. I have no agreement with them,” said Martin, the third former CFO to link Mr. Scrushy to the fraud.

In other court action:

• A judge told jurors in the trial of former WorldCom Inc. chief Bernard J. Ebbers that they did not have to consider certain supplemental charges by prosecutors to convict him.

The instruction came after jurors, on their fourth day of deliberation, sent a note asking whether they needed to agree with the supplemental charges to find Mr. Ebbers guilty of seven counts of making false regulatory filings.

The supplemental charges include that the fraud at WorldCom caused more than $100 million of losses and had more than 50 victims. Investigators put the accounting misdeeds at $11 billion.

Federal prosecutors in Manhattan, N.Y., added the charges to their indictment of Mr. Ebbers because of uncertainty that arose from a Supreme Court decision limiting the power of judges to impose harsh sentences.

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