Witness blames fraud on HealthSouth CEO

Associated Press
Published March 1, 2005

BIRMINGHAM, Ala. - A prosecution witness put the HealthSouth Corp. fraud into military terms Monday, describing fired CEO Richard Scrushy as the powerful commander in chief of a rehabilitation chain relying on "covert operations" to meet Wall Street forecasts.

"It was just inconceivable that something this massive was going on without his knowledge," said Ken Livesay, a former assistant controller who pleaded guilty in the scheme.

The depiction was at odds with defense attempts to portray another Scrushy aide, former chief financial officer Bill Owens, as the mastermind of what prosecutors contend was a $2.7-billion earnings overstatement.

Livesay described himself as a "lieutenant" in the company and said his role in the fraud - finding accounts in which to hide millions in bogus numbers each quarter - amounted to "covert operations."

"When something came to me, I had no reason not to believe it wasn't coming from the commander," Livesay said.

Defense lawyer Art Leach challenged Livesay's military comparison, pointing out that Livesay had access to Scrushy, something no lieutenant has with the president. Leach also referred to the My Lai massacre of 1968, in which U.S. troops claimed they were following orders when they killed more than 300 civilians in Vietnam.

"Are you aware an illegal order does not have to be carried out by the troops?" Leach asked.

"I am aware of that," Livesay said.

Prosecutors claim Scrushy was behind a scheme to overstate HealthSouth earnings for seven years beginning in 1996. Scrushy made millions from stock options and bonuses during the conspiracy, they contend.

The defense claims Livesay, Owens and other subordinates used lies to hide the fraud from Scrushy, allowing them to earn more money as they climbed the corporate ladder.