HealthSouth sentences raise questions about punishment

BIRMINGHAM, Ala. — Emery Harris, the only person sentenced to prison in the massive fraud at HealthSouth Corp., is readjusting to life at home after his five-month term ended in June.

Others, meanwhile, are wondering whether the punishment fit the crime for Harris and for nine other one-time HealthSouth executives who avoided prison in the massive scam. Of 10 people who pleaded guilty and have been sentenced in the multibillion-dollar scandal, only Harris, a former assistant controller, was sent to prison.

Judges gave the others a combination of house arrest, probation, fines and forfeitures.

Prosecutors already have challenged some of the sentences, and the penalties have been criticized on radio talk shows and editorial pages around Birmingham, HealthSouth’s hometown.

Pam Bucy, a University of Alabama law professor following the HealthSouth case, called the sentences “unusual” for their apparent leniency.

“You have to wonder if there are problems with the cases instead of the judges,” she said.

But Paul Rosenzweig, an expert in white-collar crime, said it’s too early to assess the HealthSouth sentences for one key reason: Prosecutors are working their way up the ladder toward key players, including fired CEO Richard Scrushy, the only executive implicated in the earnings overstatement who hasn’t pleaded guilty.

“To me, it sounds like complaints about the sentences are a bit premature because you have to see what happens to the ones who are still out there,” said Rosenzweig, a senior legal research fellow with the Washington, D.C.-based Heritage Foundation.

“It’s the ones who thought up the crime that ought to be punished,” he said.

In prosecutors’ view, Scrushy is at the top of that list. Free on $10 million bond while awaiting trial, Scrushy pleaded innocent and blamed the fraud on subordinates, particularly fired chief financial officer William Owens, who pleaded guilty and awaits sentencing.

If anything, prosecutors have been too harsh on some lower-level people implicated in the scandal, said Doug Jones, a former U.S. attorney in Birmingham now representing shareholders in a suit against HealthSouth.

Evidence showed that three people involved in the fraud — Angela Ayers, Virginia Valentine and Cathy Edwards — were little more than clerks following orders to enter bogus accounting numbers despite having lofty titles like vice president. Another, Catherine Fowler, made wire transfers to falsify a stock sale, also on orders from superiors.

“There were a couple in that group that I was surprised were even charged,” said Jones. “They were taking marching orders.”

But all the defendants were accused of having roles in a major corporate crime: a long-running scheme that prosecutors say was used to inflate earnings by at least $2.7 billion.

Twenty former HealthSouth executives have been charged since the scandal went public in spring 2003. Sixteen were accused of participating directly in the fraud, and four others were charged in a related bribery scheme.

To earn a trip to prison, Harris admitted knowingly falsifying the company’s finances. Along with the others, he said he was simply following orders. Beside his prison term, Harris still must complete five months of house arrest and three years probation, pay a $3,200 fine and forfeit $106,500 in bonuses.

In contrast, prosecutors described former chief financial officer Michael Martin as a leader of the fraud and requested a stiff term, yet he avoided prison. Martin last month was sentenced to five years probation, six months of house arrest, fined $50,000 and ordered to forfeit $2.3 million.

Harris’ lawyer, Steve Salter, has been reconsidering his client’s five-month sentence in light of the other penalties. At first he considered the brief term a victory, but now he’s not so sure.

“On reflection, it would seem that our request for probation was more than justified,” he said.

Salter said there was one key difference in the cases — five people were sentenced by one judge, and five by another judge.

Harris and four underlings who got probation were sentenced by U.S. District Judge Inge Johnson, who accepted the government’s request for relatively light punishment. The next five appeared before U.S. District Judge U.W. Clemon, who also accepted the government’s call for lighter sentences but went a step further than Johnson and rejected all of prosecutors’ calls for prison.

Johnson and Clemon apparently saw the cases differently, according to Salter.

While Harris got prison from Johnson, Clemon sentenced another former assistant controller, Kenneth Livesay, to six months of home detention. Livesay also got five years on probation; $10,000 in fines; and a forfeiture of $750,000.

Prosecutors had sought five years imprisonment for Livesay.

“I don’t have any explanation other than that it was just a different judge,” said Salter.

Prosecutors already have appealed the first five sentences, challenging the way Johnson computed punishment under the guidelines that judges must follow.

U.S. Attorney Alice Martin said prosecutors have until mid-July to appeal the sentences handed down by Clemon.