Accounting & Tax

Trial Begins for Former HealthSouth Exec

Weston Smith, the ex-CFO who blew the whistle on the company's accounting scandal, testified that Hannibal "Sonny" Crumpler attended so-called fami...
Stephen TaubNovember 8, 2005

Hannibal “Sonny” Crumpler is the latest former executive of HealthSouth Corp. to go on trial for his alleged role in the company’s $2.7 billion accounting fraud.

Crumpler is charged with one count of conspiracy and one count of making false statements to auditors, reported the Associated Press. He faces up to 15 years in prison and nearly $1.3 million in fines, and prosecutors will seek disgorgement of $2.2 million, added the wire service.

In the first day of testimony, former HealthSouth chief financial officer Weston Smith — who is credited with blowing the whistle on the scandal — testified that Crumpler attended so-called family meetings of company officials who engineered the fraud, reported the
AP.

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Smith reportedly testified that when the meetings took place, Crumpler was serving as controller of the company’s outpatient rehabilitation division; he later became the finance chief of HealthSouth spin-off Source Medical Solutions. Crumpler’s role in the scheme, Smith reportedly added, was to disguise the fraud through bogus entries tied to the company’s outpatient division.

Even after Crumpler became CFO of Source Medical, he asked Smith to help inflate HealthSouth’s earnings by $20 million in 2001, according to the AP’s account of Smith’s testimony. The two men met in 2002 and discussed a plan in which HealthSouth would claim Source Medical owed it more than $81 million for funding the company’s startup, its acquisition of another company, and its purchase of a HealthSouth software program, Smith reportedly testified.

Smith pleaded guilty to fraud-related charges in March 2003, a few days after providing the Federal Bureau of Investigation with information that exposed the fraud at HealthSouth. He is currently appealing a 27-month prison sentence, according to the AP.

Of course, his onetime boss — HealthSouth founder, former chairman, and former chief executive officer Richard Scrushy — was acquitted of all charges against him.

In related news, on Thursday former HealthSouth finance chief Bill Owens will be sentenced for his role in the fraud, according to The Birmingham News.

Scrushy has maintained that Owens was the key figure in the accounting scheme, reported the News. “By his own admission, Bill Owens was the mastermind and architect of the HealthSouth accounting fraud,” Scrushy reportedly said. “He seduced and enlisted HealthSouth accounting employees to participate in the fraud, who otherwise would never have thought about breaking the law, and he ruined their lives.”

On the other hand, former Owens and Scrushy assistant Kathy Jones wrote to the trial judge that Owens’s decisions “were not based on greed, power or control, as was the decisions made by others, but, in my opinion, by the inability to stand up to a man who created an unbelievable atmosphere of fear and intimidation,” according to the newspaper. “Bill is a man who made bad decisions under extreme duress, but could have never been the mastermind behind the fraud.”

Owens faces the possibility of 30 years in federal prison.

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