First HealthSouth sentences handed down

A federal judge in Birmingham, Ala., has sentenced one former HealthSouth executive to five months in prison and four others to serve probation for their involvement in massive accounting fraud at the outpatient services giant.

On Dec. 10, the five became the first former HealthSouth employees to be punished in the fraud investigation. They are among the 15 executives who have pleaded guilty since the fraud was first alleged in March 2003.

Former assistant comptroller Emery Harris was ordered to serve five months in prison and five more in home detention. He also must forfeit $106,000 and pay a fine of $3,000. Harris had faced up to 15 years in prison.

U.S. District Judge Inge P. Johnson also sentenced Angela C. Ayers, Virginia B. Valentine, Cathy C. Edwards and Rebecca Kay Morgan to serve four years each of probation, including six months of home detention, and pay fines of $2,000. Morgan also was ordered to forfeit $235,000. The women had faced possible sentences of five years in prison.

All five pleaded guilty to various fraud and conspiracy charges and, like the others who have pleaded guilty, have been cooperating with prosecutors. Federal investigators allege that the company had overstated earnings by as much as $2.7 billion over several years. HealthSouth founder and ousted CEO Richard M. Scrushy also has been charged in the scandal, though he has maintained his innocence and is awaiting trial.

U.S. Attorney Alice H. Martin said her office would appeal the sentences, filing objections to the underlying orders and findings that were used in the sentencing. "Her findings established a lower offense level than what we believe was required by the sentencing guidelines," Martin said.

Specifically, the government was planning to object to the way Johnson calculated what investors lost because of the defendants' fraud as well as the judge's finding that these defendants had withdrawn from the conspiracy by August 2002.

But defense attorneys said the sentences were fair. J. Stephen Salter, an attorney for Emery Harris, said, "I would have loved to have him stay home with his family, but I think that was an unreasonable expectation given the fraud."

Salter said the cooperation of Harris and the other defendants with prosecutors had helped the government with its case and had shed light on Birmingham-based HealthSouth. Without it, he said, "the public would still be confused."