A Diagnostics & Imaging Week

HealthSouth's (Birmingham, Alabama) former president and chief operating officer, James Bennett, last week became the latest officer from the company to be indicted for his role in a $2.7 billion accounting fraud that prosecutors allege was directed by company founder and former CEO Richard Scrushy.

Bennett was charged on the eighth day of Scrushy's fraud trial in Birmingham. Bennett is the 18th executive charged in a case in which 15 executives have pleaded guilty. A 39-count indictment accused him of conspiracy, securities fraud and insider trading in the sale of $17.39 million of company stock.

"Bennett and other co-conspirators would and did discuss HealthSouth's actual results of operations and financial performance and the need to falsify those before they were publicly reported," the indictment alleges.

The latest indictment complicates the legal strategy for Scrushy, who reportedly had intended to call Bennett as a defense witness.

Bennett was one of the highest-ranking executives not charged prior to last Thursday. He worked at HealthSouth from 1991 to 2000 and was mentioned several times in testimony in Scrushy's ongoing U.S. District Court trial.

In the ongoing trial of Scrushy, prosecution witness William Owens testified last Friday that Scrushy had promised to take care of Owens' family if Owens "took the fall" for Scrushy and the company's alleged accounting conspiracy, according to a Reuters report.

Owens, a former controller and former CFO of Health-South, is a key to the government's first prosecution under the Sarbanes-Oxley corporate law intended to punish executives who knowingly sign off on false financial reports. Passage of that law apparently was one reason for the refusal by some HealthSouth financial officers to continue the fraud that the government said was begun as far back as 1996.

Owens said that Weston Smith in 2002, then company CFO, told him he was leaving the firm because he was unable to continue his participation filing the false accounting reports. Owens said that he and Scrushy then devised a plan to spin off the company's surgical center operation a unit of the company not involved in the fraud and put Smith at its head to prevent his leaving. That spin-off never happened.

Both Owens and Smith have pled guilty to charges of fraud related to the case.

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