HealthSouth stock wiped out, exec to plead guilty

Wednesday, March 26, 2003 | 11:36 a.m.

SUN STAFF AND WIRE REPORTS

HealthSouth Corp. Chief Financial Officer William T. Owens will plead guilty to falsifying financial statements at the company, the largest U.S. operator of rehabilitation hospitals, U.S. Attorney Alice Martin in Birmingham, Ala., said today.

The news came a day after HealthSouth stock fell $3.80, or 97 percent, to 11 cents in over-the-counter trading.

Owens, placed on leave last week, will admit to wire fraud, conspiracy to commit wire fraud and securities fraud, and willfully certifying a false financial statement for the second quarter of 2002, Martin said. He will face as long as 30 years in prison and a fine of $5.5 million.

Last week, the Securities and Exchange Commission accused the company and Chief Executive Officer Richard Scrushy of inflating earnings by $1.4 billion and assets by $800 million since 1999. Former Chief Financial Officer Weston Smith has already pleaded guilty to securities fraud. Owens is helping prosecutors, Martin said.

Owens, who served as HealthSouth's chief executive officer for several months, will plead guilty under a new law that penalizes chief executives and chief financial officers who certify false company financial results, Martin said. He will tell U.S. District Judge Sharon Blackburn that the conspiracy began in January 1996, Martin said.

Owens agreed to plead guilty as the Birmingham-based company Scrushy founded in 1984 seeks to avoid bankruptcy and cover $345 million in bonds that come due today. HealthSouth has said its financial statements dating back to 1986 are unreliable. The New York Stock Exchange sought Tuesday to delist the shares.

Owens conspired with Scrushy and other senior officers to falsify HealthSouth's financial statements to ensure that they met Wall Street's earnings-per-share expectations, Martin said.

Lawyers for several other HealthSouth executives are negotiating possible plea agreements with U.S. prosecutors, who are trying to build a case against Scrushy.

"We continue to receive information from a number of individuals and are pleased with the swift progress in this investigation that began on March 12," Martin said.

In the Las Vegas Valley, HealthSouth operates three in-patient rehabilitation hospitals, a diagnostic imaging center, two in-patient surgery centers and 19 out-patient rehabilitation centers.

"Locally, everything is going about business as usual," spokesman Jason Cook said. "They continue uninterrupted."

Most of the employee concerns over the situation have been related to the company's 401(k) program, Cook said, adding that the plan is based on mutual fund investments and not based on HealthSouth stock. The company does have an employee stock purchase plan, but the company would not release local or national enrollment numbers, and Cook emphasized that the plan was optional.