Risk Management

Ex-HealthSouth CFO to Pay $6.9 Million

Weston Smith was also sentenced to serve 27 months in prison on criminal charges.
Stephen TaubJuly 24, 2006

A former HealthSouth chief financial officer has agreed to pay at least $6.9 million for his role in the health care company’s $2.7 billion accounting fraud.

Under the deal, Weston Smith, one of the five former HealthSouth CFOs who pleaded guilty and testified against their onetime boss, former chief executive officer Richard Scrushy, also agreed to be permanently barred from serving as an officer or director of a public company. Smith was ordered to pay disgorgement of $4,897,124 and prejudgment interest of $2,021,211, provided that $1.5 million of the sum is deemed satisfied by forfeiture and restitution ordered against him in a related criminal proceeding. Otherwise, he will have to pay more. Smith will not pay a civil penalty.

Scrushy was acquitted last year on all 36 criminal counts against him.

Smith entered into the agreement on July 14 with L. Scott Coogler, U.S. District Judge for the Northern District of Alabama, and the deal was announced by the Securities and Exchange Commission late last week. The SEC’s complaint, filed on March 31, 2003, alleged that Smith made, or directed HealthSouth employees to make, false accounting entries to inflate reported operating results in order to meet or exceed Wall Street earnings expectations.

In the related criminal proceeding, Smith was sentenced to serve 27 months in prison, among other things.

Earlier this month, a federal appeals court ordered the resentencing of another former HealthSouth finance chief. The 11th Circuit Court of Appeals called the seven-day prison term given to Mike Martin, described an architect of the company’s fraud, “shockingly short” and ordered another sentencing before a new judge, reported the Associated Press.

Martin was initially sentenced to probation and house arrest. But, after prosecutors won an appeal, the ex-CFO was sentenced to a week in prison, according to the AP.

The revised sentence triggered the latest appeal. The higher court also said that Martin’s case should be reassigned to another judge because it was likely the prior sentencing judge—U,S. District Judge UW Clemon&#8212″would have difficulty putting his previous views and findings aside,” added the wire service.

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