HealthSouth Executive’s Sentence Stands

Prosecutors won’t seek more prison time for a former HealthSouth Corp. executive ordered to undergo a second sentencing after already serving five months for fraud, the government said Tuesday.

U.S. Atty. Alice Martin’s decision not to seek a harsher sentence for former Assistant Controller Emery Harris came after the U.S. 11th Circuit Court of Appeals ruled that a judge erred in computing the amount of money Harris cost investors in a massive accounting scam.

HealthSouth, based in Birmingham, Ala., is the largest U.S. operator of rehabilitation hospitals.

U.S. District Judge Inge Johnson sentenced Harris to five months in prison in December after finding that his part in the $2.7-billion fraud cost shareholders $66 million, about one-fifth of the $328 million suggested by prosecutors. Harris completed his prison term in June and is serving five months of house arrest.

The government appealed Johnson’s sentencing decision, and the 11th Circuit last week agreed that Johnson used the wrong formula in coming up with the lesser amount.

The court ordered the judge to hold a second sentencing for Harris, raising the possibility of additional prison time for him. The appeals court also said Harris should be treated as a manager of the white-collar crime.

Martin said the ruling set a precedent for former Chief Executive Richard Scrushy and other HealthSouth executives accused in the fraud.

“This decision is a victory for the victims of the HealthSouth corporate fraud,” Martin said.

Twenty former HealthSouth executives have been charged since the government filed suit 1 1/2 years ago alleging a huge scheme to overstate corporate earnings. Sixteen were accused of participating in the fraud, and four others were charged in a related bribery scheme.

Of 10 former employees sentenced so far, only Harris has gone to prison. Others have received a combination of fines, probation or house arrest.

Scrushy is free on $10-million bond and awaiting trial, set to begin in January. Harris, who pleaded guilty and is cooperating with prosecutors, is among the former HealthSouth workers expected to testify against Scrushy.