FOR IMMEDIATE RELEASE TUESDAY, JULY 8, 2003 WWW.USDOJ.GOV CRM (202) 514-2008 TDD (202) 514-1888 WASHINGTON, D.C. - Deputy Attorney General Larry Thompson, Acting Assistant Attorney General Christopher Wray of the Criminal Division and U.S. Attorney Alice Martin of the Northern District of Alabama announced today that Jason Brown, vice president of finance at HealthSouth Corp., has agreed to plead guilty to conspiracy to commit securities fraud, falsifying books and records and wire fraud.
Brown, 34, of Birmingham, Alabama, was charged in a two-count criminal information filed today at U.S. District Court in Birmingham, Alabama. Brown has agreed to plead guilty to the charges and cooperate with the federal governments ongoing investigation into HealthSouths finances. A hearing on Browns plea will be scheduled at a later date.
HealthSouth, based in Birmingham, is the nations largest provider of outpatient surgery, diagnostic imaging, and rehabilitative health care services, with approximately 1,800 locations in all 50 states and abroad. Twelve current and former HealthSouth executives have been charged to date in the governments investigation of HealthSouth, which began in March of this year.
Todays charges demonstrate that we will pursue every financial fraud conspiracy, wherever the leads take us, said Deputy Attorney General Larry Thompson, the head of President Bushs Corporate Fraud Task Force. I commend the U.S. Attorneys Office and the Criminal Divisions Fraud Section for expanding their investigation into new areas of the corporate infrastructure at HealthSouth. With this filing, we publicly expand the governments investigation into HealthSouths accounting fraud beyond its accounting department and into its treasury department, added U.S. Attorney Alice Martin. We will continue to widen the net of our investigation to reach all those individuals who participated in this fraud. The information alleges that Brown, HealthSouths Vice President of Finance since May 2000, participated in a conspiracy to artificially inflate HealthSouths publicly reported earnings and the value of its assets, by making false entries in HealthSouths books and records and filing reports with the SEC and other agencies that materially misstated the companys net income, revenue, earnings per share, assets and liabilities from at least 1998 until the present. As a result of the scheme, HealthSouths revenue, earnings and assets were inflated by hundreds of millions of dollars in publicly filed reports.
The charges state that as part of the conspiracy to hide the true nature of HealthSouths finances, the company sold approximately $27 million of stock of another publicly traded company in 2001, but failed to record the stock sale on its own books. As a result, HealthSouths books and records fraudulently represented that the stock was an asset in HealthSouths investment portfolio, even though the stock had been sold. HealthSouths filings with the Securities and Exchange Commission for the year ended Dec. 31, 2001, included as an asset more than $27 million in the stock of a publicly traded company, when in fact HealthSouth had already sold that stock.
In meetings with other senior officers at HealthSouth, Brown was allegedly instructed to, and did, create false and fraudulent records showing HealthSouths sale of the stock in 2002, even though it had been sold the previous year. According to the charges, Brown provided the false stock sale document to others in HealthSouths Treasury Department and accounting staff, who provided it to HealthSouths auditors.
The criminal charges allege that Brown and others also altered HealthSouths same-store volume records to hide financial declines. Same store volume figures compare operating results from a set of facilities for the current quarter with operating results from the same facilities in the same period during the previous year. According to the criminal information, Brown met with other senior officers near the end of 2002 to discuss significant declines in HealthSouths outpatient same-store volume for the third quarter of 2002. At the direction of other senior officers, Brown allegedly altered the same-store volume numbers in HealthSouths books and records, making it appear that the volume for the third quarter of 2002 did not decline as much as it had. Those falsified outpatient same-store volume numbers were then included in a press release, which was sent to HealthSouths analysts and the public.
The conspiracy charge carries a maximum penalty of five years in prison and a fine of $250,000. The information that Brown has agreed to plead guilty to also includes a forfeiture count that would require the defendant to forfeit to the United States any property or proceeds that are traceable to his illegal activity.
The HealthSouth investigation remains active and ongoing. In April 2003, former HealthSouth Chief Financial Officer Aaron Beam was charged with, and pleaded guilty to, bank fraud for making false representations to HealthSouths lenders. Also in April, HealthSouth Treasurer Malcolm McVay was charged with conspiracy to commit wire and securities fraud, and filing false information with the SEC. The same charges were filed against former HealthSouth CFO Michael Martin. Five HealthSouth officers were also charged and pleaded guilty in connection with accounting fraud, including Chief Information Officer Kenneth Livesay. Vice President of Finance Emery Harris had previously pleaded guilty to accounting fraud charges, as had CFO William Owens and former CFO Weston Smith. All defendants charged to date in the HealthSouth case are cooperating with the governments investigation.
The investigation is being conducted by the FBI-Birmingham Field Office, with assistance from the SEC, Atlanta District-Enforcement Division. The prosecution is being handled by U.S. Attorney Martin and Assistant U.S. Attorneys with the White Collar Section and Asset Forfeiture Section of the U.S. Attorneys Office, with assistance from attorneys with the Fraud Section of the Criminal Division of the Department of Justice in Washington, D.C. The prosecution is being overseen by the Presidents Corporate Fraud Task Force, headed by Deputy Attorney General Larry Thompson. 03-401
Source: US Department of Justice
