BIRMINGHAM, Ala. — Federal prosecutors aren’t finished with HealthSouth Corp., despite the acquittal of ousted Chief Executive Officer Richard Scrushy in a $2.7 billion accounting scandal.
Two former executives who pleaded guilty in the accounting scheme are set for sentencing this summer, and two more indicted in the fraud are awaiting trial in Birmingham, where jurors last week found Mr. Scrushy not guilty.
HealthSouth, meanwhile, is feeding information to prosecutors as it sorts out the aftermath of the financial debacle, and U.S. Attorney Alice Martin said her office still is investigating the long-running fraud at the rehabilitation and medical services chain.
A recent earnings restatement filed by HealthSouth with the Securities and Exchange Commission (SEC) includes information about payments and perks offered to some health care providers that could have violated Medicare rules, Mrs. Martin said.
“Now I’ll turn my attention to some other things that have been on the back burner during the trial,” said Mrs. Martin, declining to elaborate.
The acquittal of Mr. Scrushy on all 36 counts was a stinging defeat for FBI agents and prosecutors who spent more than two years on the case, and Mrs. Martin said attorneys are eager to talk more with jurors to find out exactly where their case failed.
Mrs. Martin rejected the idea that Mr. Scrushy’s acquittal meant the whole investigation was a failure.
“Overall, it’s been an incredible success with 15 guilty pleas,” she said. “Sometimes, that last domino doesn’t fall.”
Years of bogus accounting at the company Mr. Scrushy founded and ran for nearly two decades were revealed in March 2003, when the SEC filed a civil lawsuit accusing him and HealthSouth of a massive fraud.
HealthSouth fired Mr. Scrushy and cleaned out most of the company’s top officers, with 15 one-time executives pleading guilty in the scam. HealthSouth never denied the fraud occurred, and neither did Mr. Scrushy.
But jurors did not feel that the government had proved Mr. Scrushy was aware of and took part in the conspiracy with some of his closest, longest-serving aides.
By the time HealthSouth employees stopped confessing, 15 persons had struck plea deals and agreed to cooperate with prosecutors trying to unravel the crime. The executives turned felons included longtime Scrushy associate Aaron Beam, who helped Mr. Scrushy start HealthSouth in a one-room office in 1984.
Beam, the company’s first finance chief, pleaded guilty to bank fraud in the scheme and was the first of five chief financial officers (CFOs) to take the stand and tie Mr. Scrushy to the fraud. Jurors rejected all of that testimony, telling reporters afterward that all five men had credibility problems.
Beam is scheduled to be sentenced July 25 for his role in the fraud. Defense attorney Donald Briskman said Beam fulfilled his part of the plea deal by taking the stand against his former colleague, and he expects prosecutors to honor their end of the bargain by recommending a lighter sentence.
“Despite what the result may have been, Mr. Beam testified accurately, completely and fully,” Mr. Briskman said.
Beam and Will Hicks, a one-time HealthSouth vice president who also testified against Mr. Scrushy and also is set for sentencing July 25, could receive probation based on the punishment handed down to 10 other HealthSouth executives sentenced so far. Only one was sent to prison, and that term was for only five months.
“I really don’t want to speculate on any possible sentence,” Mr. Briskman said.
The 11th U.S. Circuit Court of Appeals last month ordered a judge to explain his light sentences for two more former HealthSouth workers who pleaded guilty, former CFO Mike Martin and Richard Botts, a vice president, but the court didn’t order tougher punishment for the two, who received probation. Still, prosecutors are renewing their request for prison for Martin and Botts.
Meanwhile, former HealthSouth president and director Jim Bennett and Hannibal “Sonny” Crumpler, a division controller, are awaiting trial. Mr. Bennett’s attorneys have asked for a date as early as November, and Mr. Crumpler’s case is set to begin Sept. 12.
HealthSouth last month agreed to pay $100 million to settle the civil fraud charges filed by the SEC, and in January it reached a $325 million settlement with the Justice Department to resolve issues linked to Medicare billing practices.
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