Subordinate Testifies on Recording Scrushy

With federal investigators circling HealthSouth Corp., a longtime aide to then-Chief Executive Richard Scrushy decided to reveal years of fraud rather than commit perjury, according to testimony Tuesday at Scrushy’s trial.

Bill Owens, a former chief financial officer who briefly replaced Scrushy as CEO, said his cooperation included letting agents hide a small microphone in his tie so he could secretly record conversations with Scrushy.

Owens’ testimony set the stage for jurors to listen to the recordings. Prosecutors say they conclusively prove Scrushy’s involvement in the scheme at the medical rehabilitation giant, but the defense contends that they prove Scrushy’s innocence.

The trial, in U.S. District Court in Birmingham, Ala., recessed until today without the recordings being introduced.

Spending his fifth day on the witness stand, Owens said he, Scrushy and another executive discussed taking the company private in a buyout and went as far as enlisting plans from investment banker UBS Warburg.

Prosecutors showed jurors a buyout blueprint from UBS dated March 14, 2003 -- four days before agents searched HealthSouth headquarters and two days after Owens said he began cooperating with investigators.

“Our goal was to get the company back private so the balance sheet could be cleaned up,� said Owens, who became CEO as the company became buried in probes and shareholder lawsuits.

The buyout attempt failed. By then, Owens said, he already had received a subpoena from the Securities and Exchange Commission and had decided to come clean rather than commit perjury in testimony to the agency.

“Ultimately I decided I had to report the fraud, that I couldn’t do it any longer,� said Owens.

Owens said his wife, Kay, was “very upset� when he finally told her of his role in the long-running fraud, and the two later divorced. Before splitting, he said, they divided as much as $3 million in assets -- a move Owens said was meant to help save the marriage.

Owens is among 15 former HealthSouth executives who have pleaded guilty in the fraud.

Owens has portrayed Scrushy as the leader of what prosecutors allege was a conspiracy to overstate earnings by some $2.7 billion for seven years beginning in 1996. Scrushy wanted to keep stock prices high and made millions off the scam, prosecutors allege.

Scrushy claims that Owens and other HealthSouth executives hid the fraud from him, lying to him for years as they climbed the corporate ladder.

At one point, in the fall of 2002, Owens and other executives considered removing Scrushy as chairman but decided against it, according to testimony in the trial.

Owens, who was CEO at the time, testified that he met on a Sunday afternoon with then-Chief Financial Officer Tadd McVay and General Counsel Bill Horton. Owens said the company was under pressure from the outside because of Scrushy’s stock transactions, which had drawn shareholder lawsuits and a government probe.

The defense previously has portrayed the 2002 meeting at McVay’s home as being part of a coup against Scrushy, who was then HealthSouth’s chairman. But Owens said the gathering did not result in any changes.