Facing prison time, the workers say they were told to make false accounting entries, and started seeing invoices for guns, grenades and disguises.
By Associated Press
Published November 13, 2003
BIRMINGHAM, Ala. - Five workers who made false accounting entries during a huge fraud at HealthSouth Corp. kept silent out of fear after realizing the company was buying guns, grenades and spy equipment, according to testimony Wednesday at the first sentencing in the case.
Emery Harris, a former assistant controller at the Birmingham health care giant, said he and four subordinates facing prison time and hefty fines were afraid to report what was going on to authorities.
The fear intensified as they saw invoices coming in for weapons, small cameras hidden in plants, car-tracking devices and disguises with wigs, Harris said.
"There was a tremendous amount of intimidation," he said.
Harris said he told the others to make bogus entries on accounting ledgers on orders from senior managers.
One manager ordered numbers faked after a meeting with executives, including then-CEO Richard Scrushy, Harris said. But Harris testified that he got orders to falsify numbers from managers other than Scrushy, who has since been fired.
While denying he profited from the fraud, Harris admitted under government questioning that his HealthSouth income rose from $95,000 in salary and bonus in 1998 to $286,000 last year.
U.S. District Judge Inge Johnson recessed court after Harris testified. The sentencing hearing will resume today. No sentences were imposed Wednesday.
Harris faces a maximum penalty of 15 years imprisonment and $1.5-million in fines.
Also scheduled for sentencing were former corporate vice presidents Angela C. Ayers, Cathy C. Edwards and Rebecca Kay Morgan, and Virginia B. Valentine, a former assistant vice president. They each face as long as five years in prison and up to $250,000 in fines.
Officials said the minimum sentences were impossible to compute until Johnson ruled on key issues including the size of the loss to stockholders.
Based on a formula revealed in court, the government could argue that shareholders lost some $1.7-billion in the fraud, in which 15 former HealthSouth executives have agreed to plead guilty and Scrushy has been indicted.
But the government's method of estimating the loss was flawed and resulted in a figure far too high, according to attorneys for the five former executives.
Harris testified he approached two superiors in August 2002 on behalf of himself and the four women and said they would no longer participate in the fraud because of concern over the just-passed Sarbanes-Oxley bill, which provides stiff penalties for false financial reporting.
"It became apparent to us that anyone who participated in any fraud . . . could be held liable," said Harris, who briefly fought back tears while on the stand.
It was after Harris' meetings with William Owens and Weston Smith - both former chief financial officers at HealthSouth - that executives began planning a way to clean up the company's books without detection, according to court documents.
Owens and Smith are among the former executives who have agreed to plead guilty and assist prosecutors, who contend Scrushy directed the fraud to make it appear HealthSouth earnings were meeting analysts' forecasts.
Scrushy surrendered last week after being indicted on 85 counts in what the government says was a $2.7-billion fraud. Scrushy, who pleaded innocent, is free on $10-million bond.
HealthSouth is the largest U.S. provider of outpatient surgery, diagnostic imaging and rehabilitation services. The company has some 50,000 employees and about 1,700 sites in all 50 states and overseas.
