Fired HealthSouth CEO Richard Scrushy actively orchestrated and participated in a scheme to overstate earnings at the rehabilitation giant, a former finance chief testified Tuesday as prosecutors got to the heart of their multibillion dollar fraud case against Scrushy.
Bill Owens, who served as HealthSouth Corp.’s chief financial officer and secretly recorded talks with Scrushy for the FBI in 2003, painted his one-time boss as a micromanager who oversaw everything from major acquisitions to who parked where at headquarters.
“Basically, he was responsible for everything,” said Owens.
Owens said after Scrushy “directed” him to overstate earnings, it was his job to figure out how to alter financial statements and accounts. Owens, an accountant, went through a long list of executives he said helped with the scheme.
Owens said it was “very important” to Scrushy that HealthSouth meet Wall Street earnings estimates. Scrushy told him and another former CFO, Aaron Beam, to “fix the numbers” once a shortfall occurred, Owens said.
After adding millions in false revenues to the books, Owens said he took the new, bogus numbers to Scrushy and explained what had been done.
“His primary question to me was could I get this past the auditors,” Owens said. Scrushy later pressured him and Beam to continue the fraud as HealthSouth’s real numbers sagged, Owens said.
Prosecutors allege Scrushy directed a fraud that led to the overstatement of HealthSouth earnings by some $2.7 billion and enriched himself. They accuse him of using bonuses, profits from stock sales and his salary to finance a lavish lifestyle of mansions, luxury cars, boats, jewels and art.
Scrushy, 52, is named in a 58-count indictment charging him 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 Sarbanes-Oxley Act, passed in 2002.
If convicted, he could receive what amounts to a life sentence. Prosecutors also are seeking $278 million in assets.
Scrushy says Owens was leader
The defense contends Owens and other subordinates in HealthSouth’s corporate accounting offices lied to Scrushy for years, leaving him unaware of the conspiracy.
Scrushy has depicted Owens as the leader of the fraud, with defense lawyer Jim Parkman calling Owens the “godfather” of a “family” that was in on the scam, which lasted seven years.
Owens and Scrushy were once close, with Owens playing drums in rock and country bands fronted by Scrushy. But the two men barely glanced at each other as Owens began what prosecutors said would likely be several days on the stand.
Owens is one of five former HealthSouth CFOs who pleaded guilty in what an earlier witness said was a $2.7 billion scheme to overstate earnings at HealthSouth. In all, 15 former HealthSouth employees reached plea deals and are cooperating with prosecutors.
Launching a pre-emptive strike at the defense, an FBI agent earlier denied altering secret recordings made by Owens. Prosecutors say the recordings link Scrushy to the massive fraud.
Agent Gerry Kelly and an evidence technician acknowledged problems with evidence logs and the recordings, which Owens made on the eve of an FBI raid that eventually resulted in Scrushy’s indictment.
But Kelly denied altering any recordings — as the defense suggested in pretrial documents — and he said he recorded everything he heard while operating a digital recorder that picked up sound from the transmitter.
“Whenever I heard (Scrushy’s) voice, I turned the recorder on and recorded the whole conversation,” said Kelly.
Still, Kelly said a hidden recorder worn by Owens failed to work on the first of two days of recording, and a secret transmitter ran out of battery power on the second day. Owens wore both the transmitter and a body recorder both days, providing a backup in case of problems, he said.
Separately, FBI evidence technician Taura Cobb said she made an “honest mistake” by writing an incorrect date on an evidence log used to document a recording.