Department of Justice Seal Department of Justice
FOR IMMEDIATE RELEASE
WEDNESDAY, MARCH 26, 2003
WWW.USDOJ.GOV
CRM
(202) 514-2008
TDD (202) 514-1888

HEALTHSOUTH EXECUTIVE WILLIAM OWENS CHARGED IN CORPORATE FRAUD CONSPIRACY


WASHINGTON, D.C. Deputy Attorney General Larry Thompson, Assistant Attorney General Michael Chertoff of the Criminal Division, U.S. Attorney Alice Martin of the Northern District of Alabama, and Carmen Adams, FBI Special Agent in Charge of the Birmingham Field Office, announced today that William T. Owens, the chief of financial operations of HealthSouth Corp., has been charged with conspiracy to commit wire fraud and securities fraud, and with filing false certification of financial information with the Securities and Exchange Commission.

Owens, 44, of Birmingham, Alabama, was charged in a criminal information filed late yesterday at U.S. District Court in the Northern District of Alabama. Owens is currently Executive Vice President and Chief Financial Officer of HealthSouth. Owens has been employed at HealthSouth in various capacities since 1987, including as Chief Financial Officer from February 2000 to August 2001, President and Chief Operating Officer from August 2001 to August 2002 and Chief Executive Officer from August 2002 to January 2003.

The criminal information charges that from about 1996 to the present, Owens and other senior officers of HealthSouth conspired and agreed to commit wire fraud and securities fraud by making false statements in financial filings required to be made to the SEC, and to falsify books, records and accounts of HealthSouth. The purpose of the conspiracy, according to the information, was for Owens and others to fraudulently enrich themselves by artificially inflating HealthSouth's publicly reported earnings and financial condition.

Owens has agreed to plead guilty to the charges in the criminal information and cooperate fully with the government's ongoing investigation. A plea hearing is scheduled for 9:30 a.m. CT before U.S. District Court Judge Sharon Blackburn.

The charges against Owens are the second stemming from a criminal investigation into HealthSouth's finances that began earlier this month. On March 19, 2003, former HealthSouth Chief Financial Officer Weston Smith pleaded guilty to charges of securities fraud, conspiracy to commit securities and wire fraud, and false certification of financial records which were designed to inflate the company's revenues and earnings by hundreds of millions of dollars. Smith is cooperating with government investigators.

Deputy Attorney General Thompson, the head of President Bush's Corporate Fraud Task Force, commended the investigators and prosecutors working on the case for their swift and thorough work in securing the convictions and cooperation of two high-level HealthSouth executives. "Today's plea shows, yet again, that by our concentrated efforts, the Department and our colleagues on the Corporate Fraud Task Force are moving decisively to combat corporate fraud and restore investor confidence in the marketplace," Thompson said.

"As the most senior HealthSouth executive to admit to this massive accounting fraud, Mr. Owens' cooperation in the investigation has helped us rapidly identify and understand the extent to which the company falsified its financial reports for the purpose of inflating its stock price," said U.S. Attorney Alice Martin of the Northern District of Alabama. "We continue to receive information from a number of individuals and are pleased with the swift progress in this investigation that began on March 12, 2003."

HealthSouth is a publicly traded corporation organized under the laws of the state of Delaware, with headquarters in Birmingham. The company employs more than 33,000 people and has approximately 1,600 locations in all 50 states, Puerto Rico, the United Kingdom, Australia and Canada. HealthSouth claims to be the nation's largest provider of outpatient surgery, diagnostic and imaging and rehabilitation healthcare services.

Count One of the criminal information alleges that a conspiracy existed from at least 1996 until the present between Owens, the current chief executive officer and other senior officers to devise a scheme to artificially inflate HealthSouth's publicly reported earnings and falsify reports of HealthSouth's financial condition. Owens would provide the CEO of HealthSouth with monthly and quarterly preliminary reports showing HealthSouth's actual financial results. After reviewing these reports, Owens and the CEO would direct members of HealthSouth's accounting staff to find ways to ensure that HealthSouth's "earnings per share" number met or exceeded Wall Street analysts' expectations. After Owens and the CEO issued instructions as to the desired earnings per share number, HealthSouth's accounting staff met to discuss ways to artificially inflate HealthSouth's earnings to meet the CEO's desired earnings numbers.

These meeting were known as "family" meetings, and attendees were known as "the family." At the meetings, participants would discuss ways by which members of the accounting staff would falsify HealthSouth's books to fill the "gap" or "hole" and meet the desired earnings.

The criminal information alleges that, as a result of the scheme, Owens, the CEO and others caused HealthSouth to file publicly with the SEC annual reports and quarterly reports that materially misstated HealthSouth's net income, revenue, earnings per share, assets and liabilities from at least 1999 to the present. As a result, HealthSouth's revenues and earnings were inflated by hundreds of millions of dollars on publicly filed reports. For example, the information states that the balance sheet included in HealthSouth's 10-Q for the second quarter of 2002 overstated property, plant and equipment (PP&E) by approximately $1 billion, or about 33 percent of the total PP&E reported. Cash on the same 10-Q was overstated by more than $300 million, and HealthSouth's total gross assets were overstated by approximately $1.5 billion.

The information also alleges that in order to cover up the false financial information filed with the SEC, Owens, the CEO and Weston Smith met and discussed the need for Smith to sign and file with the SEC a statement which Owens knew falsely stated the financial condition of HealthSouth. According to the information, Owens met with Smith for the purpose of convincing him to continue the false certification of HealthSouth's publicly filed financial statements and to sign and certify the accuracy of HealthSouth's 10-Q for the second quarter of 2002. The CEO caused this report, which was filed after the passage of the Sarbanes/Oxley Act, to be transmitted by wire from Birmingham, Alabama, to the SEC in Washington, D.C.

The second count of the information charges Owens with willfully filing a false certification of financial information with the SEC. The information charges that the certification overstated HealthSouth's year-to-date earnings by more than $150 million and assets by more than $1 billion. Count Three charges Owens with wire fraud in connection with the transmission of HealthSouth's 10-Q for the third quarter of 2001, and Count Four seeks the forfeiture to the United States of any property which constitutes or was derived from illegal activity.

The charges carry a maximum sentence of 30 years in prison and fines of up to $5.5 million. Sentencing will be set at a later date.

The HealthSouth investigation is being conducted by the Federal Bureau of Investigation, Birmingham Field Office, with assistance from the SEC, Atlanta District - Enforcement Division. The prosecution is being handled by U.S. Attorney Martin, Assistant U.S. Attorneys from her office, and trial attorneys with the Fraud Section at the U.S. Department of Justice. The prosecution is being overseen by President Bush's Corporate Fraud Task Force.

The investigation is active and ongoing. Additional criminal charges are expected.

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