Jan 27, 2005 3 min read

BIRMINGHAM, Ala. (AP) – Fired HealthSouth CEO Richard Scrushy told his staff to “fix the numbers” to conceal a potential earnings shortfall in-mid 1996 when a massive accounting scandal was just beginning, the company’s first chief financial officer testified Wednesday. Aaron Beam, one of 15 former HealthSouth executives who reached plea deals and are expected to testify for the government in Scrushy’s corporate fraud trial, described Scrushy as being at the heart of the fraud for which he is on trial.

While prosecutors and the defense agree there was a massive scheme to overstate earnings, Scrushy contends Beam was part of a group of overly ambitious, greedy subordinates who hid it from him through years of lies.

But Beam – who helped Scrushy start HealthSouth in 1984 – said Scrushy was in on the conspiracy from its beginning.

With HealthSouth’s financial results from the second quarter of 1996 inadequate to meet Wall Street earnings forecasts, Beam said he and another finance executive who pleaded guilty, Bill Owens, went to Scrushy to discuss a problem that began on a smaller scale as early as 1991.

“We said, “Richard, we’re short. We’re not going to meet Wall Street expectations. … We’ve done everything we can”‘ using aggressive accounting, Beam testified as Scrushy sat a few feet away at the defense table.

“He said, “It’s not an option to miss our numbers. You guys need to fix the numbers,”‘ Beam testified.

Beam testified that Owens stayed at work that night with two other executives, and the next day Owens and Beam told Scrushy they had inflated revenues to make it appear the rehabilitation giant would match expectations.

“We told him we had fixed the numbers,” said Beam, who retired in 1997. “He said very little, just, “Fine, let’s prepare the earnings release.”‘

The bogus numbers were included in reports the company issued to the media and the Securities and Exchange Commission, he said.

Defense attorney Art Leach peppered Beam’s testimony with repeated objections. And in initial questioning, Leach got Beam to admit he didn’t recall the size of the discrepancy between HealthSouth’s results and numbers that were released to the public.

“It was nine years ago,” Beam said.

Scrushy’s lawyers argued in opening statements that Beam was part of a group of close-knit HealthSouth executives who called themselves “the family.” That group was behind the fraud and kept Scrushy in the dark for years, the defense contends.

Prosecutors claim Scrushy conspired to inflate earnings by $2.7 billion from 1996 to 2002 to boost company share prices so he could make millions off stock sales, salary and bonuses.

Scrushy is charged with conspiracy, fraud, obstruction of justice, perjury, money laundering and false corporate reporting in the first test of the 2002 Sarbanes-Oxley Act, passed after scandals at Enron and other corporate giants.

Prosecutors are seeking $278 million in personal assets from Scrushy, 52, and he could receive a sentence that amounts to life imprisonment if convicted.

AP-ES-01-26-05 1458EST