HEALTHSOUTH EXECUTIVE JASON BROWN AGREES TO PLEAD GUILTY TO CONSPIRACY TO COMMIT SECURITIES FRAUD

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 government’s ongoing investigation into HealthSouth’s finances. A hearing on Brown’s plea will be scheduled at a later date.

HealthSouth, based in Birmingham, is the nation’s 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 government’s investigation of HealthSouth, which began in March of this year.

“Today’s 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 Bush’s Corporate Fraud Task Force. “I commend the U.S. Attorney’s Office and the Criminal Division’s Fraud Section for expanding their investigation into new areas of the corporate infrastructure at HealthSouth.”

“With this filing, we publicly expand the government’s investigation into HealthSouth’s 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, HealthSouth’s Vice President of Finance since May 2000, participated in a conspiracy to artificially inflate HealthSouth’s publicly reported earnings and the value of its assets, by making false entries in HealthSouth’s books and records and filing reports with the SEC and other agencies that materially misstated the company’s net income, revenue, earnings per share, assets and liabilities from at least 1998 until the present. As a result of the scheme, HealthSouth’s 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 HealthSouth’s 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, HealthSouth’s books and records fraudulently represented that the stock was an asset in HealthSouth’s investment portfolio, even though the stock had been sold. HealthSouth’s 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 HealthSouth’s 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 HealthSouth’s Treasury Department and accounting staff, who provided it to HealthSouth’s auditors.

The criminal charges allege that Brown and others also altered HealthSouth’s “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 HealthSouth’s 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 HealthSouth’s 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 HealthSouth’s 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 HealthSouth’s 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 government’s 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. Attorney’s 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 President’s Corporate Fraud Task Force, headed by Deputy Attorney General Larry Thompson.

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