Scrushy Feared Suits, Exec Says

Confronted with sagging revenue, then-Chief Executive Richard Scrushy repeatedly refused to report lower HealthSouth Corp. earnings and instead continued a fraud for fear of shareholder lawsuits, a former finance executive testified Tuesday.

Mike Martin, the third former chief financial officer to tie Scrushy to a massive conspiracy, said Scrushy insisted on artificially inflated earnings in 1998 because he and Martin had sold millions in stock and he didn’t want to get sued if stock prices fell.

“Every time I would push to lower expectations, I’d get slapped back and he’d say, ‘We can’t. We sold stock last year,’ ” said Martin, who pleaded guilty in the scam.

Scrushy finally agreed to lower the company’s earnings expectations and came up with a story to hide the change, Martin said, but only after the window for shareholder suits had closed.

Prosecutors claim Scrushy was behind a conspiracy to overstate HealthSouth’s earnings by about $2.7 billion from 1996 through 2002, getting rich off salary, bonuses and stock sales as stock prices remained artificially high.

The defense contends that Martin and other former executives who pleaded guilty pulled off the fraud on their own in a bid to earn promotions and make more money.