Judge Slaps Wrist of 5 HealthSouth Execs

By Verna Gates, 12/10/03

BIRMINGHAM, Ala. (Reuters) - A former HealthSouth Corp. assistant controller on Wednesday was sentenced to five months in prison, becoming the first person to receive jail time in the $2.7 billion accounting scandal.

But four other former executives from the Birmingham-based health care company's accounting and finance departments received only probation.

Emery Harris, who was facing up to 15 years in prison and hefty fines after pleading guilty to taking part in a scheme to falsely inflate HealthSouth earnings, will spend only five months behind bars, beginning in February.

Harris, 33, was also ordered by Judge Inge Johnson to pay $106,500 restitution plus a $3,000 fine. His jail time will be followed by six months' home detention and by three years' probation.

"I have a son your age and it is difficult for me, but youth is no excuse," Judge Johnson told a sobbing Harris in handing down the prison sentence. "This is not just to punish you but to deter others."

Former vice presidents Angela Ayers, 34, Cathy Edwards, 34, and Rebecca Kay Morgan, 56, and ex-assistant vice president Virginia Valentine, 33, all of whom pleaded guilty to taking part in the conspiracy, were spared jail time.

The four women were each sentenced to four years probation with six months home detention and $2,000 fines.

In addition, Morgan, who along with Harris had been painted by prosecutors as in insider in the conspiracy, agreed to pay $235,000 in restitution out of her HealthSouth stocks and options.

The four women and their lawyers appeared relieved and expressed delight with the relative slap on the wrists.

"I'm tickled to death," said Valentine's lawyer Erskine Mathis. "These people have lost almost everything. They were young and inexperienced and put there to be manipulated and used."

All five defendants wept openly in court as they took turns begging Judge Johnson for mercy. Ayers, Edwards and Valentine noted that should they be sent to prison, their very young children would suffer.

"I have had to move in with my parents with my 4-year-old child and I am her sole provider," Valentine told the judge.

"Please do not ask me to explain to her that mommy has to go away."

Edwards said she felt intimidated by her superiors and had been afraid not to cooperate in the fraud.

"I felt extremely trapped and afraid I would lose my job. I was afraid for my safety," she said.

Edwards's lawyer, James O'Kelley, said the women had seen invoices showing the HealthSouth security department had purchased guns, hand grenades and disguise masks.

"I think they received a lot of mercy today," said U.S. Attorney Alice Martin, the lead prosecutor on the case. "It is a very sad day when someone has to beg the court to stay home to raise their children," Martin said.

The five sentencings were the first for the 15 former HealthSouth executives who pleaded guilty to various criminal fraud charges. All have agreed to cooperate with the government case against former HealthSouth Chief Executive Richard Scrushy, who was accused of defrauding the government and investors by directing the $2.7 billion accounting fraud.

Scrushy has pleaded not guilty to 85 criminal counts and is awaiting trial. He has said he had no knowledge of the massive fraud, which he maintains was perpetrated by his underlings, including former chief financial officers.

Prosecutors had been denied a motion to delay the sentencings until the full value of their cooperation could be determined.

Martin said she accepted the light sentences but she planned to challenge the formula that was used to determine the loss to investors that in turn helped determine sentencing.