HEALTHSOUTH EXECUTIVES RICHARD BOTTS AND WILL HICKS AGREE TO PLEAD GUILTY TO CONSPIRACY TO COMMIT SECURITIES, MAIL 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 Richard Botts, the Senior Vice President for Tax at HealthSouth Corp., has agreed to plead guilty to conspiring to commit securities fraud falsifying books, and mail fraud. Will Hicks, Vice President of Investments at HealthSouth Corp., has also agreed to plead guilty to conspiracy to make false statements to auditors and maintain false books and records.

Botts, 45, of Hoover, Alabama, was charged in a three-count criminal information filed today at U.S. District Court in Birmingham, Alabama. Hicks, 39, of Birmingham, was charged in a two-count criminal information also filed today at U.S. District Court in Birmingham. Botts and Hicks have agreed to waive indictment and plead guilty to the charges, at hearings to be set at a later date. They have also agreed to cooperate with an ongoing federal probe into fraud at HealthSouth.

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. Botts and Hicks are the 13th and 14th individuals to be charged in the government’s investigation of HealthSouth, which began in March of this year.

The criminal informations on Botts, the Senior Vice President of Tax at HealthSouth since May 1998, and Hicks, the Vice President of Investments at HealthSouth since March 1999, state that they joined in a conspiracy with others to, among other things, falsify books, records and accounts of HealthSouth. According to the charges, these efforts were part of a conspiracy among senior officers at HealthSouth and others, to fraudulently enrich themselves by artificially inflating HealthSouth’s publicly reported earnings and the value of its assets. The conspiracy also involved the filing of annual and quarterly reports with the Securities and Exchange Commission that materially misstated HealthSouth’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 and earnings were inflated by hundreds of millions of dollars on publicly filed reports.

“Today’s announcements are an excellent example of the coordination and cooperation that exists in our corporate fraud investigations,” said Deputy Attorney General Larry Thompson, the head of President Bush’s Corporate Fraud Task Force. “The Internal Revenue Service provided valuable assistance to the U.S. Attorney’s Office, the Criminal Division, the FBI and other agencies on the case. Together, we scrutinized the company’s taxes, investments and accounting records to uncover the truth about HealthSouth’s finances.”

“Today’s charges show this fraud was not isolated in the accounting department of HealthSouth Corporation. This is not a mere ‘accounting fraud,’ but rather a business scheme to fraudulently boost HealthSouth’s reported earnings,” stated U.S. Attorney Alice Martin. “The actions of both of these defendants helped conceal the scheme to fraudulently inflate earnings from the investing public, the auditors and government regulators.”

According to the information, Botts and others provided false tax information to state tax authorities and the Internal Revenue Service in order to help conceal the bogus assets and to prevent discovery of the scheme to inflate earnings. According to court documents filed in conjunction with the criminal information, members of HealthSouth’s accounting staff provided Botts with false depreciation schedules which were tied to and included fictitious assets on HealthSouth’s general ledger. Botts then provided the false information to tax officials. The charge states that he also signed and submitted, via the U.S. mail, to the IRS consolidated U.S. Corporation Income Tax Returns for HealthSouth that contained materially false information about the company’s taxable income, depreciation deductions and assets, among other things.

The maximum sentence for the conspiracy charge, a violation of 18 U.S.C. Section 371, is five years in prison and a fine of up to $250,000 or twice the gain or loss. The mail fraud charge, a violation of 18 U.S.C. Section 1341, carries a maximum penalty of five years in prison and a fine of up to $250,000 or twice the gain or loss. Botts has also agreed to forfeit to the government any and all property constituting or derived from proceeds traceable to criminal violations.

According to the second information filed today, Hicks and others willfully and knowingly made false and misleading statements to auditors and omitted material facts in order to mislead accountants in connection with an audit of HealthSouth’s financial statements for the years 2000 and 2001. In the spring of 2001 and 2002, Hicks caused investment portfolio summaries of assets to be provided to the auditors which contained false information and omitted material facts concerning HealthSouth’s investment in a company that owned assisted-living facilities. Hicks also met with HealthSouth’s auditors and made false statements and omitted material information, which helped conceal the bogus assets on HealthSouth’s balance sheet.

The maximum sentence for the conspiracy charge, in violation of 18 U.S.C. Section 371, is five years in prison and a fine of up to $250,000 or twice the gain or loss. Hicks also has agreed to forfeit to the government any and all property constituting or derived from proceeds traceable to criminal violations.

“The HealthSouth investigation remains active and ongoing, and we are receiving full cooperation from HealthSouth Corporation,” Martin said.

Earlier this month, HealthSouth Vice President of Finance Jason Brown agreed to plead guilty to conspiracy to commit securities fraud, falsifying books and records and wire fraud. In April, former HealthSouth Chief Financial Officer Aaron Beam was charged with, and pleaded guilty to, bank fraud for making false representations to HealthSouth’s lenders. Treasurer Malcolm McVay and former HealthSouth CFO Michael Martin have pleaded guilty to conspiracy to commit wire and securities fraud, and filing false information with the SEC. 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 are cooperating with the government’s investigation.

The investigation is being conducted by the FBI-Birmingham Field Office and the Internal Revenue Service-Birmingham Division. The prosecution is being handled by U.S. Attorney Alice Martin and Assistant U.S. Attorneys with the White Collar Section and Asset Forfeiture Section of the U.S. Attorney’s Office, and the Fraud Section and Asset Forfeiture and Money Laundering 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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