The main whistleblower in the accounting fraud at HealthSouth Corp. got the longest sentence so far in the case, while another former executive received probation Thursday.
U.S. District Judge Robert Propst sentenced former finance chief Weston Smith to 27 months in prison, ordered him to pay $1.5 million in forfeited assets and spend one year on probation after his release.
The judge acknowledged the wide range of sentences that have been imposed in the HealthSouth case and almost invited an appeal to the 11th U.S. Circuit Court of Appeals in Atlanta.
"If they determine my sentence is unreasonable, I won't get mad at anybody," the judge said.
Defense lawyer Bill Baxley said he would have to talk to Smith before deciding whether to appeal. Smith sat quietly at the defense table and cried when the judge sentenced him to prison.
Assistant U.S. Attorney James Ingram, who asked the judge for a five-year sentence, said Smith was the first person to reveal a $2.7 billion fraud at the rehabilitation and medical services chain and would deserve an even longer term had he not come forward when he did.
"Mr. Smith was the first person in the door, so to speak," said Ingram.
But attorneys for Smith sharply criticized the recommendation, saying prosecutors were asking for the most severe punishment yet in the HealthSouth scam even though the fraud may never have come to light without Smith's decision to go to the FBI in early 2003.
The defense claimed prosecutors were trying to make an example of Smith because of the acquittal of fired HealthSouth CEO Richard Scrushy, whom Smith and four other CFOs testified was the leader of the fraud.
"It's not his fault Richard Scrushy didn't get convicted," Baxley said.
In a separate session, Propst sentenced former HealthSouth investments vice president Will Hicks to two years on probation, three months of house arrest and $52,600 in forfeitures, fines and court assessments for his role in the fraud.
Hicks, now working as a consultant in Seattle, pleaded guilty to lying to auditors and maintaining false records. Prosecutors said Hicks' actions didn't cost investors any money, and they didn't recommend a sentence for Hicks.
Hicks, 40, became the ninth former HealthSouth executive to get probation and avoid prison for an accounting scheme that brought the Birmingham-based company to the edge of bankruptcy.
The most severe penalties handed down in the case so far were five months imprisonment for a former assistant controller, Emery Harris, and three months for Aaron Beam, HealthSouth's first CFO and a co-founder of the company with Scrushy.
Another former finance chief, Mike Martin, was sentenced to one week in prison earlier this week, and a fourth, Tadd McVay, received probation.
A fifth CFO to work under Scrushy, Bill Owens, is scheduled to be sentenced in November.
Smith's lawyers argued that Propst would hurt future investigations by sentencing Smith to a tougher sentence than other former HealthSouth executives since he was the first to report the fraud, revealed amid an unrelated investigation into alleged insider trading by Scrushy and others.
The lead FBI agent on the case, Gerald Kelly, testified for the defense that harsh punishment for Smith could impede future investigations by discouraging corporate criminals from ever reporting their actions.
Former Assistant U.S. Attorney Mike Rasmussen, who retired during the HealthSouth investigation, said he thought Smith blew the whistle on HealthSouth "because it was just all too much and he felt very guilty about it and he wanted to clear his soul."
"I think it's fair to say that Mr. Smith coming in to us is what started the HealthSouth fraud investigation," Rasmussen testified.
But Ingram argued that Smith reported the fraud only after he had received a subpoena from the Securities and Exchange Commission, which was leading the probe into insider trading claims. Ingram dismissed suggestions that Smith simply got caught up a fraud that began before he became CFO and continued after he stepped aside.
"As the chief financial officer of a Fortune 500 company he knew exactly what he was doing," said Ingram.