An accountant who pored over HealthSouth’s books for the government in its case against fired CEO Richard Scrushy testified that earnings were inflated by $2.7 billion from 1996 through 2002.
The false financial statements were not the result of aggressive accounting practices, as the defense might suggest, said forensic accountant Harvey Kelly.
“It was just flat-out making up numbers,” he said.
Kelly’s testimony Thursday came after Scrushy’s defense tried to damage the credibility of a key witness in the government’s criminal case, HealthSouth co-founder Aaron Beam. The medical rehabilitation chain’s first finance chief, Beam told the court Scrushy instigated the fraud with a demand that numbers be fixed so second-quarter earnings in 1996 would not fall below Wall Street expectations.
But under intense cross-examination Thursday, Beam testified that Scrushy never explicitly told him to do anything illegal to hide the earnings shortfall.
“(He) didn’t use the word unlawful,” said Beam.
Scrushy is accused of conspiring with HealthSouth executives to overstate earnings in order to meet analyst expectations, boosting company shares and enriching himself by millions. Scrushy’s defense contends the scheme was conducted without the CEO’s knowledge by Beam and others. Beam is among 15 former HealthSouth executives who have agreed to plead guilty in the fraud.
Trying to damage Beam’s credibility before a jury that includes several people who are active in churches, defense lawyer Jim Parkman got Beam to admit to owning two nightclubs, drinking and putting up a woman other than his wife in a home before he left HealthSouth, where he also got her a job.
“Did you lie to your wife?” Parkman asked.
“Yes,” said Beam.
But Beam, who retired from HealthSouth in 1997, didn’t budge from earlier testimony that Scrushy told him and a colleague to “fix the numbers” — a statement they took as an order to do whatever it took to meet earnings. He denied Parkman’s suggestion that Scrushy really was telling them to clean up years of “aggressive accounting” that had been used to boost earnings earlier.
Beam grew visibly flustered as Parkman asked why he can’t now recall the size of the initial overstatements but told agents in 2003 that revenues were inflated by some $500 million in 1996, the year he said the fraud began.
“They were pressing me to give them some numbers to the best of my ability,” Beam said.
Parkman zeroed in on the statement, repeatedly asking why Beam could recall the amount to agents but not on the witness stand.
“You’ve got a printout there of exactly what I said two years ago, and you’re asking me to remember exactly what I said two years ago,” Beam said with a wave of a hand. “That’s hard to do.”
Returning to the FBI statement, Parkman again asked whether Beam felt “pressed” by agents to provide evidence.
“Sometimes you wish you could get a word back,” Beam said.
Beam’s recollection that revenues were overstated by $500 million in ’96 appeared in conflict with Scrushy’s indictment, which alleged $89 million in overstatements that year.
The government has given varying numbers on the exact size of the earnings overstatement, which prosecutors claim ended in 2002.
While the current indictment against Scrushy lists the total value as $2.64 billion, prosecutors told jurors the fraud was worth $2.7 billion. The initial indictment against Scrushy estimated the overstatement at $2.74 billion.
Scrushy, 52, is charged with conspiracy, fraud, obstruction of justice, perjury, money laundering and false corporate reporting in the first test of the 2002 Sarbanes-Oxley Act.
Prosecutors are seeking $278 million in personal assets, including waterfront homes, luxury cars and a yacht from Scrushy, who could get what amounts to a life sentence if convicted.