The defense at Richard Scrushy’s fraud trial tried to show Tuesday that aides to the former HealthSouth Corp. chief hatched an earnings overstatement and hid it from him to cover up their own mistakes handling mergers and expenses.
Using a black marker to spin a complicated web of numbers on a piece of white paper at the front of the courtroom, Scrushy lawyer Jim Parkman asked a former finance executive if anyone could tell what was going on at the company without seeing all of its true revenues and expenses.
No, answered former chief financial officer Mike Martin, one of a group of former executives the defense blames for the scheme.
“That’s what y’all did and how you planned it, so (Scrushy) wouldn’t know what the whole picture was?” said Parkman, making a statement as much as asking a question.
The prosecution objected and the judge agreed, letting the question hang in the courtroom unanswered.
Scrushy is charged with overseeing a seven-year fraud that began in 1996 and inflated HealthSouth earnings by some $2.7 billion to make it appear the company was meeting Wall Street expectations. Prosecutors claim he made millions off the fraud in salary, bonuses and stock sales.
The defense contends Martin and other former Scrushy subordinates committed the fraud on their own and got rich climbing through the corporate ranks.
Earlier, Martin testified Scrushy was fully informed of the company’s sagging revenues and rising expenses and knew all about the fraud, in which Martin and 14 other HealthSouth executives have pleaded guilty.
Martin denied Parkman’s claims that he and other executives who investigated potential merger targets did sloppy work, leading to unexpected expenses being brought on to the books of HealthSouth.
And Martin, the third former chief financial officer to link Scrushy to the fraud, said it wasn’t his job to control expenses at HealthSouth’s medical offices and hospitals.
The testimony came as Scrushy’s trial entered its seventh week.
Martin’s fifth day on the stand started on an odd note as he testified about his own angry threats to kill people at work. Martin confirmed on cross-examination that he has a volatile history, including “sucker punching” former co-worker Leif Murphy in a bar and using a vulgarity on Murphy’s going-away card.
Martin said he was angry because he felt “betrayed” by the departure of Murphy, who testified he quit HealthSouth in 1999 rather than get involved in the scam.
“You had a history of this kind of attitude at the company didn’t you?” asked Parkman.
Martin confirmed that he had a bad temper that included making idle threats to hurt people at the office.
“I probably told a couple people I’d kill them, yeah,” said Martin.
The testimony could be important because prosecutors have portrayed Scrushy, not Martin, as intimidating and bullying underlings at the rehabilitation chain.
Free on $10 million bond, Scrushy is charged with conspiracy, fraud, money laundering, obstruction of justice, perjury and false corporate reporting in the first case of a CEO being charged with violating the Sarbanes-Oxley Act.
Scrushy could get the equivalent of a life sentence and have to forfeit as much as $278 million in assets if convicted.