HealthSouth probe widens with involvement of IRS

Jay Reeves

Friday, Aug. 1, 2003 | 11:13 a.m.

BIRMINGHAM, Ala. -- Two more HealthSouth Corp. executives agreed to plead guilty to charges announced Thursday, including filing false tax returns to hide a scheme to overstate earnings by at least $3.5 billion.

The latest plea deals -- the 13th and 14th since the government sued HealthSouth in March -- were the first confirmation of Internal Revenue Service involvement in the case.

Prosecutors said the investigation has gone far afield from its roots in the corporate accounting department at HealthSouth.

"This wasn't something just thought up by the accountants. It wasn't something they did on their own. It is a business fraud. It is widespread," said U.S. Attorney Alice Martin.

Richard Botts, 45, a senior vice president for tax, agreed to plead guilty to charges including conspiracy to commit security fraud and falsifying books. He was accused of mail fraud for allegedly providing false information to state tax authorities and the Internal Revenue Service to conceal overstated assets and to cover up fraud.

Will Hicks, 39, vice president of investments, agreed to plead guilty to conspiracy to make false statements to auditors and maintaining false records.

Botts could face up to 10 years in prison and fines of $500,000, while Hicks could receive a maximum five years imprisonment and a $250,000. Both men, however, could get probation.

No court dates were immediately set.

Martin, who announced the plea agreements at a news conference, said Botts and Hicks were cooperating with investigators, as are the corporation and everyone else who has pleaded guilty.

Botts, who went to work HealthSouth's tax department in 1998, was in charge of the company's tax returns, according to the charges. He filed federal returns in 2001 and 2002 that concealed the fact assets had been inflated to artificially boost earnings, prosecutors charged.

Ismael "Pete" Guerra, assistant agent in charge of the IRS office in Atlanta, declined comment on the amount of overstated assets. While HealthSouth has indicated it may seek a refund on tax overpayments linked to the fraud, Guerra said it was too early to determine how much could be at stake.

Hicks is a former health care analyst who issued reports on HealthSouth and then came to work for the Birmingham-based company. He was part of a scheme to cover up a $13 million investment in assisted living facilities that became "virtually worthless," Martin said.

From 1996 to 1999, Hicks also was a principal with fired HealthSouth chief executive Richard Scrushy and former chief financial officer Michael Martin in 21st Century Health Ventures, a firm that reportedly invested some $10 million for HealthSouth.

Scrushy, through his attorneys, has denied any wrongdoing. But the defense lawyers have also said they expect him to be indicted.

Michael Martin and the company's four other CFOs are among those who have pleaded guilty. Some of the defendants have implicated Scrushy.

Alice Martin said the grand jury investigation was continuing and has reached into the company's operating divisions. Using the media to speak to workers at HealthSouth's Birmingham headquarters, she said anyone who was involved in the fraud still had time to come forward.

"The window is closing very rapidly," she said.

Carmen Adams, special agent in charge of the Birmingham FBI office, said extra agents have been in Alabama for "months at a time" assisting with the investigation.

HealthSouth calls itself the largest U.S. provider of outpatient surgery, diagnostic and imaging and rehabilitation services. The company has nearly 1,700 facilities and 51,000 employees in every state and abroad.