Former HealthSouth Executive Describes Deception and Abuse

HealthSouth founder Richard M. Scrushy, right, speaks with attorney Donald Watkins during a break from the trial. (Jan-michael Stump -- Birmingham Post-herald Via AP)

A former HealthSouth Corp. vice president testified yesterday that he signed a false loan document after founder Richard M. Scrushy screamed at him in anger for discussing "fabricated earnings" at the company in 1999.

Leif M. Murphy, 36, had testified for prosecutors that Scrushy, who is on trial for his role in a $2.7 billion accounting fraud, berated him in July 1999 over his analysis that HealthSouth's earnings, if reported accurately, were 72 cents a share below the expectations of Wall Street analysts.

Scrushy attorney James W. Parkman III cross-examined Murphy to try to undermine his account. Murphy, who is not charged with a crime and worked in the company's treasury department, admitted he falsely certified on Aug. 17, 1999, that HealthSouth complied with terms of a $1.75 billion bank loan.

"I submitted this certificate in the second quarter in an administrative capacity, and regrettably the numbers were inaccurate," Murphy told federal jurors in Birmingham.

Prosecutors accuse Scrushy, 52, of inflating profit from 1996 to 2002 and laundering money to support a lavish lifestyle. Scrushy denies wrongdoing and blames the fraud on 15 executives who pleaded guilty, including five finance chiefs. He said members of a group called "the family" hid the fraud from him.

Murphy, who spent three years at HealthSouth, denied Parkman's suggestion that he conspired with the group.

"Were you a member of this family?" Parkman asked. "Absolutely not," Murphy said.

"Did you know about the fraud that was going on at HealthSouth?" the lawyer asked. "I did not," Murphy said.

Murphy told jurors yesterday about meeting Scrushy in his Birmingham office to show him a financial analysis he completed in July 1999. Murphy said he found that HealthSouth faced a cash shortfall of $550 million for the year and that only "fabricated earnings" could fill the gap. He said he urged Scrushy to release accurate figures and lower company guidance.

After the meeting, Murphy said, Scrushy burst into the office of former finance chief Michael D. Martin.

"Mr. Scrushy barged in and was very heated," Murphy said. "He appeared very angry, and he began to shout at me, where do I get off telling him how to run his company that he has been running for 14 years."

Murphy said he submitted his resignation on Aug. 3, 1999, the day of an earnings conference call. He admitted giving a misleading answer about company debt "as a reflex" during that call. Murphy, who works now for Renal Care Group Inc. in Nashville, said he left HealthSouth by the end of that month. Murphy said Martin, who has pleaded guilty, initially tried to persuade him to stay and later offered him $1 million.

Murphy said yesterday that Martin later grew angry and gave him an obscene card that told him to "eat [expletive] and die." Murphy said Martin "sucker punched" him twice in a bar fight at his going-away party. He said Martin "apologized profusely" after that incident, and "I accepted his apology."