Former HealthSouth exec gets probation as company finishes review

Tuesday, June 1st 2004, 4:42 pm

By: News On 6

BIRMINGHAM, Ala. (AP) _ A federal judge rejected prison time for a key figure in the HealthSouth fraud scandal Tuesday as the company said its review of the scam found $3.4 billion in false entries and bad accounting.

Kenneth Livesay, a former assistant controller and information officer at HealthSouth, was sentenced to six months of home detention and five years on probation. He also was ordered to forfeit $750,000 he made through the fraud and fined $10,000.

Livesay had pleaded guilty to conspiracy to commit fraud and falsifying financial information. He also agreed to the criminal forfeiture.

Prosecutors had asked U.S. District Judge U.W. Clemon to sentence Livesay to five years in prison, arguing he played a major role in the huge fraud by creating false entries with other top executives.

``It's certainly a fraud that cannot be ignored and certainly deserves a substantial sentence,'' said Justice Department attorney Richard Wiedis.

But Clemon noted Livesay's assistance with the HealthSouth investigation and his lack of a criminal record in refusing prison time.

Livesay told the judge he was sorry for the losses to the company and shareholders. Livesay said he didn't mean to hurt anyone but ``made some bad choices.''

``I accept complete responsibility for my role in the HealthSouth tragedy,'' said Livesay, 43, who now works for a mortgage company.

His wife Donna and other relatives and friends cried with joy at the light sentence. In court documents, the defense said Mrs. Livesay recently was diagnosed with multiple sclerosis and needed her husband at home.

Prosecutors said they could still challenge the calculations Clemon used in arriving at the sentence.

Outside court, HealthSouth released the findings of its internal review of the fraud, which has resulted in plea deals for 17 former HealthSouth executives and charges against fired CEO Richard Scrushy, who pleaded innocent.

The company said its investigation found $2.75 billion in fraudulent entries and another $632 million in misstatements linked to improper accounting practices.

The numbers approached estimates released by HealthSouth in January and could change as investigations continue, the company said.

``The accounting fraud at HealthSouth was by any standard both enormous and complex. Its concealment over the course of nearly seven years required considerable effort and, in some cases, luck,'' the company said in its report.

The chairman of a special board committee that performed the forensic review with attorneys and a team from PricewaterhouseCoopers, Jon F. Hanson, said the results would be ``invaluable'' in reconstructing HealthSouth's accounting records.

New chief executive Jay Grinney said completing the review was an important step toward rebuilding the company, based in Birmingham.

``We have worked _ and will continue to work _ to build an environment where integrity and honesty are the cornerstones of our corporate culture,'' Grinney said.

Bondholders have declared HealthSouth in default over its failure to file new financial reports since the scandal broke last year. While the audit was an important step, new reports could still be months away.

Copies of the forensic review report were sent to a special board committee, federal prosecutors and the Securities and Exchange Commission, which sued HealthSouth last year alleging massive fraud.

Livesay was the sixth former HealthSouth executive sentenced in the case. Four more also received probation, and one, Emery Harris, was sentenced to five months in prison.