The former president and chief operating officer of HealthSouth Corp., James P. Bennett, was indicted on Thursday for his alleged part in a $2.7 billion accounting fraud that occurred from 1996 to 2002. HealthSouth was the country's largest operator of rehabilitation hospitals.
Prosecutors have accused Mr. Bennett of fraud, conspiracy, insider trading, money laundering, misleading the company's auditors, Ernst & Young, signing false audited financial statements filed with the Securities and Exchange Commission, signing a phony bond registration statement, and signing an untruthful management representation letter to E&Y. Mr. Bennett is also accused of lying to the FBI by stating that, when he was employed at HealthSouth, "the company never manipulated the stock price."
The indictment also claims that Mr. Bennett participated in the process of inflating revenue and overvaluing assets at HealthSouth in order to satisfy Wall Street analysts. Mr. Bennett was President and COO of HealthSouth from 1995 to 2000.
Meanwhile, the fraud trial of HealthSouth founder Richard Scrushy continues in Birmingham, AL. Before Mr. Bennett's indictment was announced, he was expected to testify at that trial in support of Mr. Scrushy. Now, Mr. Bennett's attorney, Anthony Joseph, is suggesting that Mr. Bennett may invoke the Fifth Amendment if he is called upon to testify at the Scrushy trial.
The 47-year-old Mr. Bennett faces $33 million in fines and the rest of his life in prison, as well as relinquishment of $28 million in personal assets if he is found guilty of the 39 counts with which he has been charged. Jim Henry, another defense attorney, has stated that Mr. Bennett, "was not involved, in any form or fashion, with any fraud or other wrongdoing at HealthSouth."
To date, 18 former HealthSouth executives have been charged with criminal actions, and 15 of those have pleaded guilty.