US: HealthSouth probe continues despite Scrushy acquittal

Federal prosecutors aren't done with HealthSouth Corp., despite the acquittal of ousted CEO Richard Scrushy in a $2.7 billion earnings overstatement.

Two one-time executives who pleaded guilty in the accounting scheme are set for sentencing this summer, and two more who were indicted in the fraud are awaiting trial in Birmingham, where jurors last week found Scrushy not guilty.

HealthSouth, meanwhile, is still feeding information to prosecutors as it sorts out the aftermath of the financial debacle, and U.S. Attorney Alice Martin said her office continues 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 includes information about payments and perks offered to some health care providers that could have violated Medicare rules, Martin said in an interview with The Associated Press.

"Now I'll turn my attention to some other things that have been on the back burner during the trial," said Martin, declining to elaborate.

The acquittal of Scrushy on all 36 counts was a stinging defeat for FBI agents and prosecutors who spent more than two years working on the case, and Martin said attorneys are eager to talk more with jurors to find out exactly where their case failed.

But Martin rejected the idea that 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 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 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 Scrushy.

Instead, jurors bought defense claims that he was completely unaware of a conspiracy pulled off by some of his closest, longest-serving aides.

By the time HealthSouth employees stopped confessing crimes, 15 people 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 Scrushy start HealthSouth in a one-room office in 1984.

Beam - HealthSouth's first finance chief - pleaded guilty to bank fraud in the scheme and was the first of five CFOs to take the stand and tie Scrushy to the fraud. Jurors rejected all that testimony, telling reporters afterward that all five men had credibility problems.

Now, Beam is scheduled to be sentenced on July 25 for his role in the fraud. Defense lawyer Donald Briskman said Beam fulfilled his part of the plea deal by taking the stand against his old 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," said Briskman.

Beam and Will Hicks, a one-time HealthSouth vice president who also testified against Scrushy and also is set for sentencing on 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," said Briskman.

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, one-time CFO Mike Martin and Richard Botts, a vice president, but the court didn't order tougher punishment for the two, who got 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. Bennett's attorneys have asked for a date as early as November, and Crumpler's case is set to begin Sept. 12.

HealthSouth repeatedly has said it is cooperating with authorities, but Martin said no decision has been made on whether to charge the corporation itself with a crime.

"The company has continued to self-report things that it found, and we are still looking into those," she said.

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.

• 186 Financial Services, Insurance and Banking