Exec Calls HealthSouth Hot Line a Joke

A former finance chief at HealthSouth Corp. testified Wednesday that Richard Scrushy was an intimidating boss at the medical services chain and that reporting a huge accounting fraud to its hot line would have done no good.

The employees taking the calls reported to Scrushy and the hot line was “a joke,” said ex-Chief Financial Officer Weston Smith.

Smith, a government witness at Scrushy’s corporate fraud trial in U.S. District Court in Birmingham, Ala., also told prosecutors that Scrushy “surrounded himself with a large security force. They carried guns.”

The judge instructed the jurors to disregard the comment about guns. She said that it was irrelevant to the case and that she had told the prosecution to avoid mention of weapons when questioning witnesses.

Smith said he declined to secretly record Scrushy for the FBI because he had only limited contact with Scrushy and it might have raised Scrushy’s suspicions.

Earlier Wednesday a defense attorney sought to portray Smith and another former HealthSouth CFO, Bill Owens, as out to save themselves in the days before an FBI raid exposed a massive accounting fraud.

Under cross-examination, Smith said that in March 2003 he was tipped off by Owens that Owens was recording conversations at HealthSouth’s headquarters in Birmingham for the FBI.

“He pointed to himself and mouthed, ‘I’m wired,’ ” Smith said.

Scrushy lawyer Jim Parkman has questioned the validity of Owens’ recording, which includes conversations with Scrushy and was presented by prosecutors in Scrushy’s trial. Parkman pointed out Wednesday that none of the recordings included Smith.

“What were you hiding, that you couldn’t say then, that you can’t say now?” Parkman asked.

Smith denied hiding anything.

He said that he contacted his attorney Feb. 27, 2003, to discuss the fraud and met with federal authorities March 11, 2003 -- becoming the first executive to report the accounting fraud to the government.

Owens later agreed to secretly record Scrushy for the FBI, which raided HealthSouth’s headquarters March 17, 2003.

Smith and Owens are among 15 former executives at the company who have pleaded guilty in what the government says was a scheme to inflate earnings by $2.7 billion from 1996 to 2002 to meet Wall Street expectations. The prosecution contends that Scrushy directed the fraud, but the defense has been attempting to show that the other executives committed it on their own, profiting from it and lying to Scrushy to hide it from him.

Parkman asked Smith whether he was trying to help out Owens when meeting with the FBI.

“I provided damaging information on Mr. Owens also,” Smith said. “I didn’t do any favors for Bill.”