Former HealthSouth president indicted

/ Source: The Associated Press

Another former top HealthSouth Corp. executive was indicted Thursday for what prosecutors say was his part in a massive fraud as jurors at Richard Scrushy's trial watched a video of the former CEO exhorting, cajoling and warning hundreds of employees at a 1998 meeting.

In a DVD recording played on a big screen near the witness stand, Scrushy excitedly talked about management's "incredible control" of rehabilitation chain HealthSouth and his own close watch over the company's finances and expenses.

"With the new budget team we have we are so tight," Scrushy said in the meeting, held in Orlando, Fla., for managers of hundreds of medical centers operated by HealthSouth nationwide. Prosecutors say HealthSouth's books were awash that year in more than $600 million worth of fraud ordered by Scrushy.

As testimony in his criminal trial continued, the U.S. attorney announced that former HealthSouth president and director James P. Bennett had been indicted in the fraud, which prosecutors say overstated earnings by about $2.7 billion from 1996 to 2002.

Bennett, 47, was accused of fraud, conspiracy, insider trading, money laundering and lying to the FBI in a scheme in which he sold company stock worth about $17.4 million, according to a statement from prosecutors.

Testimony in Scrushy's trial has indicated Bennett knew of the scam, in which 18 people have now been charged. Fifteen have reached plea deals and are expected to testify in Scrushy's trial.

Besides prison time that could amount to life and $33 million in fines if convicted on all 39 counts, prosecutors are seeking $28 million in assets that they claim Bennett made from the alleged conspiracy.

Defense attorney Jim Henry said Bennett "was not involved, in any form or fashion, with any fraud of other wrongdoing at HealthSouth."

"He will plead not guilty, and is looking forward to the opportunity to clear his name," Henry said.

Bennett, who worked at HealthSouth from 1991 until 2000, was president and chief operating officer from 1995 until he left. He joined the HealthSouth board in 1993.]

Video shows threats
On the video played in the courtroom, the fast-talking Scrushy repeatedly told managers the company had a strong compliance program, checked reports of fraud and wouldn't tolerate wrongdoing.

"We don't want to fool with that. We want to do what's right," said Scrushy, who contends he was unaware of a fraud committed by top aides and lower-level executives who lied to him.

The recording, which showed a series of slides as Scrushy talked in the background, also showed him making a series of veiled threats to managers, at one point saying no one should ever hire a convicted felon.

"If you do that's insubordination and we'll fire you," said Scrushy. As he spoke, chuckles rose from the courtroom.

Scrushy also said people had been "misquoting" him and being "childish" after meetings and warned employees not to do it anymore.

"I'm going to someday get you," he said on the recording without elaboration. Scrushy said workers had "tracked down" someone who complained about the "stupid stick figures" he used in a drawing to motivate employees, but he didn't say exactly what happened.

During a third day on the witness stand, former chief financial officer Bill Owens said Scrushy often talked in meetings about following the law.

"That was part of the overall scheme to divert attention from what was actually going on," Owens said, prompting an objection from the defense. U.S. District Judge Karon Bowdre told jurors to disregard the remark.

In testimony, Owens said he and Scrushy discussed firing Bennett during a meeting at an east Alabama reservoir in 2000. Scrushy and Owens had homes on Lake Martin, and Owens said they stopped and talked while Scrushy was practicing water landings in his seaplane and Owens was riding his Seadoo watercraft.

"We had a meeting in the middle of the lake," said Owens. The two decided to dismiss Bennett as chief operating officer because morale was low and the company's revenues were on a downward spiral, Owens said.

Owens described a once-close relationship with Scrushy, saying he played drums in rock and country bands fronted by Scrushy.

"(We) started out as a garage band," said Owens, one of five HealthSouth CFOs who admitted participating in the fraud while working under Scrushy. "We became, I think, pretty good over time."

Scrushy is on trial on charges of conspiracy, fraud, money laundering, obstruction of justice, perjury and false corporate reporting in the first test against a CEO of the Sarbanes-Oxley Act.

If convicted, he could receive what amounts to a life sentence. Prosecutors also are seeking $278 million in assets.