Scrushy: Report from Birmingham

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

UNITED STATES OF

AMERICA,

CR-03-BE-530-S

v. Birmingham, Alabama

May 18, 2005

RICHARD M. SCRUSHY,

Defendant.

**********************

TRANSCRIPT OF TRIAL

BEFORE THE HONORABLE KARON O. BOWDRE

UNITED STATES DISTRICT JUDGE, and jury.

VOLUME LVIII

APPEARANCES:

FOR THE GOVERNMENT:

ALICE MARTIN

U.S. ATTORNEY 1801 4th Avenue North

Birmingham, Alabama 35203

RICHARD C. SMITH RICHARD WIEDIS

NATHANIEL EDMONDS COLLEEN CONRY

U.S. Department of Justice Criminal Division, Fraud Section

1400 New York Avenue, NW Suite 1400

Washington, DC 20503

JAMES INGRAM

TAMARRA MATTHEWS U.S. Attorney's Office

1801 4th Avenue North Birmingham, Alabama 35203

FOR THE DEFENDANT:

ART LEACH

LES MOORE 2310 Marin Drive

Birmingham, Alabama 35243

JIM PARKMAN

MARTIN ADAMS Parkman & Associates

739 West Main St. Dothan, Alabama 36301

DONALD V. WATKINS

Donald V. Watkins, PC 2170 Highland Avenue, Suite 100

Birmingham, AL 35205

H. LEWIS GILLIS

Thomas, Means, Gillis & Seay 505 20th Street North

Birmingham, Alabama 35237

Court Reporter:

Teresa Roberson, RPR, RMR

Julie Martin, RMR, CRR Federal Court Reporter

1729 North Fifth Avenue, Suite 325 Birmingham, Alabama 35203

205.492.2483

I N D E X

CLOSING ARGUMENTS:

BY MS. MARTIN. . . . . . . . . . .PAGE 14395

BY MS. CONRY . . . . . . . . . . .PAGE 14469

BY MR. LEACH . . . . . . . . . . .PAGE 14507

BY MR. PARKMAN . . . . . . . . . .PAGE 14543

BY MR. WATKINS . . . . . . . . . .PAGE 14613

BY MR. SMITH . . . . . . . . . . .PAGE 14652

* * * * *

P R O C E E D I N G S

* * * * *

(SIDEBAR IN CHAMBERS)

(Brief recess)

(SIDEBAR IN HALLWAY)

(Open court. Jury not present.)

(SIDEBAR)

THE COURT: As y'all can see, we have an overly crowded courtroom. And I understand that Mr. Scrushy may have been pushing the limits of the assigned seats that we had designated for him.

The rule is that you have to have an armband or a lanyard to get in for this reserved seating, in essence, today.

And I understand that some people may have gotten -- that more than one person may have come in on a lanyard that has been passed around.

MR. LEACH: How is that possible?

THE COURT: Passing them back outside. And that people of the public have been bumped. We made extra seating available yesterday to both sides, or the day before, both sides have two full rows. And I understand Mr. Scrushy's desire to have as many of his friends and family here as possible. But we also have an obligation to the public.

So after the break, when people come back in, if they are not wearing their lanyard or have on their armband, their wrist bands, they are not going to get in.

I'm sorry about that, but we have to make sure that our adoring public can get in the courtroom as well.

So if counsel would explain that to Mr. Scrushy, I would appreciate it, so that we don't have anymore problems with the press and the public for trying to get in. Okay.

MS. SHARON HARRIS: Thank you, Judge.

MS. MARTIN: Do you have any idea how you want to have a morning break for the jury, because I'm going to go about an hour and a half and turn over the last thirty minutes to Ms. Conry in our first two hours.

I didn't know if that is a good breaking point or if you want to get through our two hours and then break.

THE COURT: We had discussed that previously when you were not present, Ms. Martin, and I had indicated that I would, at this stage, very much rely upon counsel to indicate when a good breaking point was so that I would not be interrupting your arguments.

And I have basically tried to go about an hour and a half before we take breaks.

So if that would be a good time to break, take a fifteen minute break between you and Ms. Conry or if you want to push it. But also I asked, when we were discussing this in chambers, I had been given some leeway to say, excuse me, I think we need to have a short stand up break or whatever.

MS. MARTIN: Certainly. I was told of that.

THE COURT: So --

MS. MARTIN: So we need to just try to indicate when I stop that that would be a good time, if it's agreeable with the court.

MR. LEACH: As with opening, if there are objections, the clock stops; is that right?

THE COURT: Yes. But I hope there will not be any objections.

MR. LEACH: Stretch break stops the clock, too?

THE COURT: Exactly. I'm not going to infringe upon your time.

(Open court. Jury present.)

THE COURT: Good morning, ladies and gentlemen. You will now hear summations or closing arguments from the attorneys.

I want you to remember what I have told you several times during the trial and that is that what the lawyers say is not evidence. I encourage you to test what the lawyers say against your own recollection or memory of the evidence. You are the judges of the facts and of the credibility of the witnesses, not the lawyers.

We allow lawyers to make these summations so as to help you pull all of the evidence together and see how it ties together, as opposed to the little disjointed pieces you have heard.

But do remember, as I have told you, that what the lawyers say is not evidence. And if they say something that doesn't quite mesh with your memory, you go with your memory, not the lawyers' statements. Okay.

Is the government ready?

MS. MARTIN: We are, Your Honor.

THE COURT: You may proceed, Ms. Martin.

MS. MARTIN: Thank you.

CLOSING ARGUMENT BY MS. MARTIN

MS. MARTIN: May it please the court, defense counsel, ladies and gentlemen of the jury: It's been almost four months since you were seated and took the oath of office -- of office -- of juror, and I know it's been a long haul.

I want to thank you on behalf of the United States for the time that you've taken out of your lives. Because, as you know, our justice system simply couldn't work without people that are willing to commit their time for public service as jurors.

And we want to thank you for sitting and listening patiently and for weighing the evidence impartially.

Jury service, as you know, is not really entertaining like Law and Order. It's very hard work. You will be sifting through the evidence looking for the truth.

In a few minutes, I know the defense will come up and they will paint Mr. Scrushy as the victim of his five CFOs. But I want to remind you of who the real victims are in this case.

I told you four months ago, when I first spoke to you in opening, that you were going to meet people that had relied upon the information that they had gotten from HealthSouth about the finances, that they relied upon that information, and because of that reliance, they made investments.

Do you remember almost four months ago meeting Mr. Reiner? He was from Parish, Alabama.

Do you remember meeting Dr. Ellenburg? She lived here in Birmingham. Mr. Reiner was the retired Alabama Power worker who heard about the stock being delisted on CNBC.

Dr. Ellenburg was the scientist, the spry eighty-three year old woman who came in here and had really done her research. They told you what they relied on. They looked at that shareholder letter that he wrote to them, and they believed in it.

They were two of the many mail fraud victims. You will see their initials in the indictment. But they represent many, many of the people, individuals and institutions that relied on that information.

And the reason we put them first is because I don't want you to forget about the victims. They were the ones that were cheated. They were the ones that were defrauded.

It wasn't just the individuals. It wasn't just the individuals who saw the shares that they held go down to a dime after that stock was delisted. It wasn't just the individuals. Do you remember Retirement Systems of Alabama, the bondholders, they also lost.

I told you also on the very first day that this case was going to come down to one word that you would be back in that jury room trying to deliberate and answer the question, what did he know, it comes down to knowledge.

We have shown that knowledge several ways. We have shown you what he saw. We have shown you what was said to him, and you have heard what he said. I told you then that we were going to go inside HealthSouth, because that's how you learn about conspiracies. You don't learn about them by standing out on the street from the honest employees. You learn about them from the co-conspirators.

We said we would take you inside HealthSouth, and we would show you private financial reports that the public didn't see, that you would hear conversations of that inner circle, that fifth floor group, the confidants, the circle of the conspiracy, that the public didn't hear on those earnings calls. And we told you that you would hear the tapes, hear what he said in those hushed conversations in that back hallway by his bathroom when he asked, are you wired, when he didn't think that jurors one day in federal court would be listening to his own words.

Now, the defense says there's no smoking gun, and I never thought there would be a gun in this case. This gun is about a lot of paper. And I will tell you in a white collar crime, about the sexiest thing you've got is these spicy audit reports. That's about it. That's what you get. You get forensic audits in white collar crimes.

The smoking guns are the evidence, ladies and gentlemen, these documents. Look at what he saw. They will tell you what he knew. Listen to the conversations. That's how you learn things.

The crimes are complex. But you know how they were completed, with a fountain pen and computers. With that man's signature alone, he was able to pocket two hundred and seventy-five million dollars' worth of tainted money into his pocket while cheating and defrauding investors. All it took was a signature on the 10-Ks and 10-Qs that he knew had false financial information and just stick them on that EDGAR system and send them up electronically to D.C., to Washington, to the SEC, where they're then disbursed to analysts and all these investors across the globe, literally.

So, first, we're going to go through the documents he saw, those inner circle conversations that he had, and we're going to listen to the words he said.

We've had lots of exhibits, lots of numbers, lots of confusing numbers, lots of dashes that the judge has had to remind us to put in. This is just going to try to help you to organize them, because you're going to have all those exhibits back with you.

We're going to look at what the defendant knew because of what he saw, and I'm going to briefly run through these just to help since we've had four months since you first saw some of these documents. Now, this gives you the Government Exhibit Number series.

First, I want to start with the budget, because in putting in the case, we sort of went in the logical order of witnesses, but not always in the logical order of how the documents really come to pass in the business.

So I want to start with the very first business report that I want you to think about, and that's the budget. Just like you might have a home budget, the budget is where to start. And as Director of the Board, Sage Givens, she told you each year the Board approved one annual budget. And she told you that annual budget was also called HealthSouth's business plan.

Now, on your screen, you're seeing the budget for 1996. And on the budget, you see they project what they're going to make in revenue, and then you subtract out what you're going to have in expenses, and it leaves you with your net income or profit.

And on their budget forms that are on the screens, you'll see that's then brought down, divided by shares that are outstanding and that gives you your EPS. And remember that earnings per share is what they then sent out in press releases to the public giving the guidance. So that becomes the Wall Street expectations. They figure, if you're running the business, you know how much you ought to make and they look at that for guidance, the analysts told you that.

I want to show you how the budget ties into the next document that you saw. And that is the weekly revenue reports. Remember the weekly revenue report, that was the report that was actually a form that Mr. Beam told you was devised, was created by Mr. Scrushy.

Remember Mr. Beam was the first CFO, and he had worked with Mr. Scrushy out at LifeMark in Houston, Texas. That company was acquired, so Mr. Scrushy had an idea, and HealthSouth is formed, and he brings a lot of those Texas buddies with him to Birmingham.

Mr. Beam was the first CFO, and he said that Mr. Scrushy managed by the numbers.

The weekly revenue report was the weekly report of the revenue of what their numbers were, how they were doing, and he got that form weekly. You know that because of the testimony of Mr. Beam, Mr. Martin, Mr. Owens, and it was supported by the testimony of Mr. Scrushy's executive assistant, Mary Esclavon. She told you that report would come.

When you look at the report, Mr. Martin said it was a barometer. It doesn't give you all the information, but it's a barometer. And if you're missing that top number, then it's hard to get to the bottom and meet the budget.

The report on your screen is a weekly revenue report that was the five week summary. This is just from June of 1996.

Remember the full report was very thick, because it had a page for each of the eighteen hundred or so, whatever the number was at the time, of the facilities.

And remember what the CFOs told you, they said only two people outside of the top inner circle finance people that were in the conspiracy received that full report; that was Mr. Scrushy and the Chief Executive Officer, Jim Bennett.

And there's a reason why the other people didn't receive the report. Because when you look at these reports, what do you know? You know how badly they are missing the budget.

Now, on this report, you will see, just to orient you again, that they project what they have made. That's their actual gross revenue.

The next column is their budgeted amount. That will tie back to their annual budget, what they were expecting to make during that time.

And then there's the variance column. And the variance is whether they are above or below. And remember what all the accountants told you, if there are brackets, parenthesis around the numbers, it's a negative.

So you can see on this report, quite quickly, that for the month of June of 1996, HealthSouth was below budget. It was missing its budget by about twenty-one million dollars.

The weekly revenue reports are in this GX -- they start with 20 and then there will be a dash, and it goes all the way up to 114. We put in 114 of these reports.

You will remember when Mr. Beam was on the stand, we showed him nineteen reports that had been created during the time he was CFO. And remember we went through one of them and it was a negative number. And then Mr. Parkman got up on cross and he said, well, I bet they showed you a negative but I bet you the rest of those reports are positive.

Remember what Mr. Beam said? I think we all laughed. He said, what do you want to bet? And you remember Mr. Parkman admitted that he lost that bet. I think he tried to borrow a dollar from somebody. Because when we went through those nineteen reports, because when Mr. Smith got back here and drew on the chart and went through those nineteen, what had they done? They missed their revenue by about two hundred thirty-four million dollars.

Now, while I'm at it, if I throw out a number that doesn't agree with your memory, please use yours. I know y'all took lots of notes and I know they're good notes. And I know you'll do just what we did, you'll refer back to your notes. And we know that you'll do that.

Weekly revenue reports, they don't show the full picture, that's right. They don't show the full picture because they don't show contractuals and they don't show expenses.

I tell you right now, I'm not going to go down the rabbit hole of contractuals. Because, I know one thing, contractuals means they're making less money than they billed, right? You don't pay the amount that's on the bill.

If you've got a negative number, taking out for contractuals doesn't make that negative number a positive. So they can talk about contractuals all they want, it is a red herring, and I won't go there.

Now, what I will say is that this report is a red flag. And it does not take a financial genius, and those are the words of one of his fellow board members that he sat on other boards with for fifteen years, a financial genius, brighter than any investment banker he had ever worked with, Mr. Newhall's words. It doesn't take a financial genius to know when you see these week after week after week after week and you are not making your budget that something is happening. You're going to have to do something. You're going to have to do something to make your budget.

If you plan to make your EPS and hit Wall Street expectations, you're going to have to bring down your guidance, you're going to have to cut expenses, you're going to have to do something.

So, what was he thinking when he saw these? What did the defendant say when he received these reports? These reports that they say don't tell you that much, what did he say?

(Excerpt of Government's Exhibit 701-22 played in open court.)

THE COURT: Ms. Martin, could you please identify what exhibit that was that you just played so the record will be clear?

MS. MARTIN: Yes, that's a clip of Government's Exhibit 701-22, Your Honor.

THE COURT: Thank you. And if all counsel would do that when you refer to something, please.

MS. MARTIN: Ladies and gentlemen, what's the truth? Is it the defendant's statement, his pre-indictment statement to his troops? That's the most important thing we can have as a company. I know exactly what you're doing week to week. I take it home and I study it every chance I can.

Or is it the, I'm now indicted, I'm in federal court, these reports just don't really tell you that much, because you've got to have expenses, you've got to have contractuals to get the whole picture. You decide.

Well, he did get the rest of the picture, and he got them in the consolidated worksheets. You heard the man, he said, I'm watching the expenses. We are tight. We are tight.

And those reports, which you also got many of, you have heard from Beam and Martin and Owens that those were the reports that they personally took to Mr. Scrushy. Those were the hot potatoes that he wanted to give right back to them right after he saw them. He didn't want those in his hands. He didn't want those in his office.

Now, the defense has argued that he just didn't get those reports. Well, it is uncontroverted. There is no proof to the contrary. I want you to use your common sense. The weekly revenue report shows revenue. There's been no other report introduced to you that shows expenses.

Can you run your home only knowing how much money you've got coming in? Do you think that man ran a Fortune 500 company not knowing what the expenses were?

You have heard testimony from many people. He is the quintessential micromanager. He had his finger on the pulse of HealthSouth. He's the one who had top officers stand up and have the people below them, over a hundred officers, in Monday morning meetings, stand up and for three minutes tell you what they did last week and three minutes on what they're going to do the next week. That's what he did.

He approved every flight taken on a HealthSouth plane. He approved who ate in the executive dining room.

Do you think the man just didn't look at expenses for the company? Remember, he was paid in the top seventeen percent of Standard & Poors 500 CEOs. You know what he made. You know he looked at the expenses.

They're asking you not to believe that he saw this key report. And you know why? Because the key report shows the fraud. What are they going to say? He saw the report but he just didn't understand it.

They can't come up here and do that to you, so they've just got to say he didn't see it.

I want you to look at this report. There are a lot in evidence. And I want to make sure when you get back there and want to look at them with your evidence, that you understand these reports, since we produced so many.

But it just shows you the columns. The columns show you the different divisions. You can see the line items on the left. You see a column called consolidated. That's when all the divisions numbers are added together, what they come up with.

But the last two are those extra columns. I'll just call them the fraud columns. This is the first quarter 1998 report. And it shows what? It shows you that HealthSouth is a hundred and nine million dollars short.

Do you see the column labeled Street? That's what the Street was expecting based on the guidance HealthSouth had given.

You see the variance? That's what their actual production was doing. They were behind. That shows you the fraud. Look at the bottom. They're making ten cents. The Street is expecting twenty-six and a half. What was he seeing? The fraud.

Let me tell you another common sense. If I told you next month when you go back to work that you're going to get a two hundred thousand dollar bonus at the end of the month if you make your target, that's what his contract provided, you will see it in the proxy, based on the monthly report, would you look at the monthly report to see if you've got your two hundred thousand dollars bonus?

Now, we heard in the opening from Mr. Parkman, he had his chart over here and drew circles, that the defendant put in the balances, the checks and the balances and that the corporation was controlled by this group of people, the Board of Directors. Let's talk about those checks and balances.

I want to just say for a minute, you met some of the board members. What did they tell you? The outside directors came to four board meetings a year in Birmingham, Alabama, and then they had a retreat. That's four days in Birmingham. You heard the list of boards that those people are on. You went through the bylaws. You saw what their responsibilities were.

The day-to-day operation was there in the hands of Mr. Scrushy. He led this conspiracy just like he led that corporation.

What you also heard was that they only got historical information. How did they get information? Remember what they said? They would get a binder to prepare for their board meetings.

What did they say? Their binders were sent to them by the chairman, and they got historical data shortly before it was filed with Wall Street.

So who got the weekly revenue reports and the consolidated worksheets out of those checks and balances?

Well, not the internal auditor, Ms. Sanders; not the external auditor, E&Y; not the Board; not even the chairman, George Strong, of the audit committee; none of them got them.

And I would think if it's the most important report we have, his words, if it's the most important report we have, if the corporation was controlled by the Board, why didn't they get them? They didn't get them. We asked each of the board members, they didn't get them.

You know, this isn't negligence. We're not talking about a foolish business decision. We're not talking about a bad business decision. We're talking about criminal activity, someone that saw the fraud or deliberately closed their eyes. And this man had a watchful eye.

And with all of this information, we come down to the last reports that are filed, the reports that have the false financial statements in them, and that's the 10-Qs and the 10-Ks.

And from all he knew, from all the reports he saw and that you have in evidence, he signed those original signature pages and his signature was electronically sent on those forms, along with his CFOs who conspired with him, to Washington and the public relied on them.

The last document I want to talk about that he saw was the Murphy binder.

And, ladies and gentlemen, if he didn't see any other document between 1996 and 1999 in July when Mr. Murphy sat down with him with that binder, if he didn't see any other document, that document was a smoking gun and told him of this fraud.

You remember Mr. Murphy, Mr. Murphy was the treasurer at HealthSouth, a treasurer at HealthSouth, 1999. A young man, barely thirty. And Mike Martin asked him to do an analysis of whether or not the split of the companies, which you saw a press release in June of 1999, they had proposed they might split HealthSouth into two companies. He wanted to know if it made financial sense. And he gave full access to Mr. Murphy, the financial records.

Mr. Murphy told you when he saw the numbers, saw all the data, he was shocked. He was absolutely shocked. And he spoke with Mr. Owens and he tried to do his analysis, and the numbers did not make sense. And he wanted to take his analysis directly to Mr. Scrushy, his boss. And Mr. Martin went with him to that meeting.

And there was Mr. Murphy, barely thirty, going into the lion's den, showing him this binder. And you're going to have the original binder, it's marked Court's Exhibit 1.

You will remember that we marked certain pages as Government's Exhibit 13. It's the thirteen series. And the court, the next day, after we had seen the original binder, compared and told you in an instruction that the pages were the same.

We just pointed out certain pages. Because, remember, Mr. Murphy went in with the binder. And he said, I showed him certain pages. But then I had the back-up data for my analysis in case he had any questions about what I had done. So we did that for ease, but look at it. Compare them.

Now, Mr. Murphy, in this document, showed Mr. Scrushy a first run, one of these consolidated worksheets and it showed that HealthSouth was missing twenty cents. We marked this as Government's Exhibit 13-C.

And he told him in order to announce that you have hit earnings, Mr. Scrushy, you're going to have to fabricate, make up seventy-two percent, that means seventy-two cents of every dollar would be a lie. HealthSouth didn't make it.

And then Mr. Murphy showed him this document, 13-K. HealthSouth, on this, it showed we would have to make up seventy-two percent to make up earnings. And you see the bottom section of this report is where he's giving him his ideas on reducing earnings.

And what he said was, you know, even if we reduce estimates, you've got to do it now. You can't do it over time. This is an emergent situation.

Now, Mike Martin told you he blacked out the word "fabricated" on this because certain words, you know, weren't said. He didn't want to upset Mr. Scrushy. But look at the words on this that aren't blacked out. Look at the word "shortfall." Look at the words "accumulated accounting issue."

And I submit to you if you take every word off this page and just look at the numbers, that it does not take a financial genius to see the negative signs. You see they are losing money. No words were needed to describe it.

And what did Mr. Scrushy say to Mr. Murphy? No words. Mr. Murphy told you he was silent.

Then he showed him this document. It was about the Horizon/CMS deal, Government's Exhibit 13. This is the deal where they hid the four hundred million dollars in fraud when things were getting so bad and they needed other places. It was too big to break up into little small pieces and spread out and get out of the radar of the auditor. They needed some new ways to hide it.

And this is when Mr. Scrushy said to Beam, I'm sorry, to Mr. Martin and Mr. Owens, damn, you guys are good.

Well, here's this financial analyst, thirty-something, coming in. And, while these fraudsters are patting each other on the back, how they're cheating and defrauding the good people, the people that are depending on them and investing in them, what they're seeing is what Mr. Murphy told you. We just paid good money for this company. And now, based on this analysis, we're spending enough money on capital expenditures -- remember that was something that the analysts were concerned about and always pointed out that HealthSouth was higher than other companies. We're replacing every hospital bed, every chair, every computer, every piece of equipment about every two years. And he said, the numbers just aren't right. They're just not right. But Scrushy didn't say anything.

Mr. Murphy told you he didn't ask any questions. He didn't look surprised. Said nothing. Just looked intently, I believe, was Mr. Murphy's word.

So Mr. Murphy, Mr. Martin, they go back to Mr. Martin's office, but the wait wasn't long. Murphy told you Mr. Scrushy barged in, he was red in the face, he was very angry. And he said, where do you get off telling me how to run my company that I've been running for fourteen years? I started it on a blank piece of paper, and I don't need you telling me how to run it. You're just a doomsayer.

Now, that's what Mr. Martin and Mr. Murphy told you.

Now, the defense has to say that Martin and Murphy are both lying. They have to say that. They have to say Mr. Murphy was a part of the conspiracy and had some kind of motive. They have to say it because what does the meeting tell you? Scrushy is either in on the fraud or he has now seen it and he's just deliberately closing his eyes to it. You can't be careless. It's not an error in judgment.

And who saw Scrushy walk into Martin's office? Who heard the defendant yelling at Martin and Murphy? Who told you they saw Richard Scrushy come out of the office, red faced and upset? And who told you that Mr. Murphy, within a short time, retired from HealthSouth, resigned from HealthSouth? LeAnne Tyler, the executive assistant, the secretary that was sitting outside of Mr. Martin's office and heard it that day. She came up here from Dothan, Alabama to tell you what she remembered.

What do we know? We know that within days, on August the 3rd of 1995, Mr. Scrushy committed Count Five of the indictment, a wire fraud, because he picked up, joined a HealthSouth earnings call and he told investors, we have met earnings, second quarter earnings per share, twenty-seven cents in line with what the analysts had on the company.

Well, that included the twenty cents, ladies and gentlemen, of the fraud. And he went on to brag in that conversation on August the 3rd. The company met the expectations of the Street in a very uncertain and difficult healthcare environment where many companies have had difficulty.

How does the defense explain this binder? Any CEO in America that was brought this binder would have smoke alarms going off in their building. He was HealthSouth's treasurer. But he wasn't a top five floor officer, was he? He didn't know about this fraud.

The reason Mr. Scrushy didn't walk out of that office and cool down and say, well, now, maybe I better check out this young man's word. Maybe I better check out what Leif Murphy said. Maybe I better see what's going on. Maybe I just better call my auditors. Maybe I ought to let my audit committee know. Maybe I ought to call the hotline.

You know why he didn't do it? Any investigation would have pointed the finger right at him. You can't investigate yourself, can you? Nope.

So those are the documents. And that is what this defendant knew, because of what he saw.

Now, I want to talk to you about what he knew because of what he heard. There's been a lot of statements. I'm going to ask you to rely on your memory and your notes because there's so many. But I want to talk about just some key conversations.

Let's start at the beginning, second quarter of 1996. Aaron Beam tells Mr. Scrushy, we have not met Wall Street expectations. We just missed a little bit, he didn't know the exact number now, it's been so many years, but somewhere between five and ten million dollars, and that's supported by Harvey Kelly's forensic audit. You can see here, starting very small, around seven million. I believe they told us at one point that seven million meant about a penny in EPS.

He told Mr. Scrushy, we have missed our earnings and there's nothing we can do in accounting. There's no accounting trick. There's nothing we can do. Mr. Scrushy said it is not an option to miss the earnings. He said, well, we can't do anything. There's nothing else we can do. There's nothing creative we can do, no tricks. And he said, fix it.

Ladies and gentlemen, when your CFO tells you there's nothing he can legitimately do -- and Mr. Beam also told him we would have to put in false numbers -- if he tells you that and you say fix it, that is directing a fraud.

It is laughable for them to come up here and argue, as they tried to on cross-examination, well, did he use the word "illegal"? Did he use the word "fraud"? Did he use the word "false"? Did he use the word "phony"?

And we could sit up here with a thesaurus all day long. You know what, if somebody says, I'm going to hit the bank, they haven't told me they're going to rob it. They haven't said they're going to knock it over. They haven't said they are going to forcefully remove the funds from the teller's arms.

I mean, it is ridiculous. We're playing a word game here. Fix it. You know what he did. And that night, they stayed there and they worked those numbers and they came back the very next day and they showed him those numbers. And within days, he announced that to Wall Street.

Now, they want you to say, they want you to buy into this theory that Bill Owens is the mastermind.

Ladies and gentlemen, he was a bean counter controller in HealthSouth. He joined HealthSouth in 1985. This is 1996. He's been down there counting numbers for eleven years. And you think all of a sudden he just convinced a CFO, a cofounder, Aaron Beam to just start committing fraud so they could get a little boost in salary and bonus?

I mean, from 1996 to the year 2000, in this fraud, Bill Owens is still sitting down there in that lower office. What did he do, put him under a spell?

I want you to listen in the tapes at the end how this man manipulates Bill Owens. Bill Owens wasn't the mastermind, but Richard Scrushy is a master manipulator, and he is a pied piper. And they believed in him, and they believed in this company. And they thought this was a bump in the road that they would get over by doing it just this one time.

But as they explained to you, it wasn't just one time. It went on and on quarter after quarter. And after about a year, Mr. Beam told you he just decided to retire. He was tired of it.

Well, when he retired, Mr. Scrushy needed to bring in a new CFO, and you can't go outside. You know from banking, you can't -- bank tellers, they don't leave. If a teller never takes a vacation day, they say, check the cash because something is probably wrong.

Same thing here, they kept inside. These were inside promotions, homegrown.

So Mr. Martin comes in. And Mr. Martin had found out about the fraud once he had come into HealthSouth, because it's hard not to get these numbers and not find out about the fraud. If you've got the whole picture, you know the fraud.

Martin spoke, he told you, to Mr. Scrushy on a regular basis about the income statement and the balance sheet, and he said that Mr. Scrushy was always aware of the shortfall. And he told you that in late 1997 Mr. Martin and Mr. Scrushy sold a lot of HealthSouth shares because it was trading at about twenty-seven dollars a share.

Mr. Scrushy, the evidence showed you, sold a hundred and seven million dollars in stock options.

Well, in 1998, operations just got worse. You can see on this report that in the first quarter of 1998, the EPS is ten cents, but the Street is expecting twenty-six cents. Mr. Scrushy told Martin, you guys know what to do. Mr. Martin said, we can't do this. It's hard to get it up to this number. The variance was huge. You heard Ms. Givens, she told you two cents is huge, and now you're looking at some sixteen cents.

So, Martin told the defendant, he said, we need to lower guidance or we have to do an acquisition. The defendant rejected the suggestion of lowering guidance, and you heard about some of the acquisitions that they did.

Martin told you that virtually on a weekly basis he would go over the weekly revenue reports and he would talk about the fact that there weren't a lot of expenses that you could cut. These showed that HealthSouth wasn't making their budget. The solution was to lower guidance. The defendant just slapped that solution back.

You remember, during the summer of 1999, Ken Livesay did that analysis. And it showed that, based on the fact that they were paying taxes on money they weren't really making, at this point, they're losing cash. They were hemorrhaging cash, so they need to bring this number down.

And you hear that Mike Martin gave information that he thought was inside information that Harris wasn't going to use, but a negative analyst report came out. HealthSouth's stock reacted. Wall Street reacted, and the number was brought down.

You have also learned about the budget process of 1999. I won't go into the details except to say HealthSouth did lower their guidance in 1999, and they cited the Balanced Budget Act as one of the reasons they needed to lower it.

Remember that the Balanced Budget Act was used as part of a cover up. It was real. There was some impact, but just like Transmittal 1753 in 2002, it wasn't as big an impact as they were really telling the Street.

Now, in 1999, there were two major events. We have talked about one of the major events, and that's the Leif Murphy meeting in July.

The other major event in the history of this fraud happened in October, and it involved Diana Henze. You will remember Diana Henze was -- it's on this chart. Diana Henze was the assistant vice president in accounting. And she was the one that had the ability to hit a button basically and open up the books and close the books, and she would be told when to open them and when to close them in the consolidation process. And she told you that she saw some jumps in the EPS, and she didn't understand those.

She went to her supervisor Livesay. He gave her an explanation once, and she didn't accept it after she saw it jump again, and she went to compliance.

You will remember seeing the compliance log. Ms. Cullison, Kelly Cullison, remember, was the compliance director, and she came in and testified that this number, the 102899, was October the 28th of '99, and that's when Ms. Henze brought the complaint in.

And she told you that she didn't have access to the books and records of HealthSouth to make an investigation. So she went immediately to her supervisor, who was the corporate compliance officer, Tony Tanner.

And she went to him, told him of the complaint, and he said he would handle the investigation. And Ms. Cullison told you, as is now shown on the log, that Mr. Tanner, came back shortly and said the allegation was unsubstantiated, to close the file, and this reflects investigated by CCO, and that was Tony Tanner.

Now, ladies and gentlemen, by this time, you will remember that the accounting department was basically a pressure cooker. Remember Mr. Livesay saying it was just getting so hard. There were thousands of entries they were making to do this fraud, trying to conceal it from the outside world, trying to fool their auditors.

And at one point, Mr. Martin even asked Mr. Scrushy if he would give Mr. Livesay a pep talk. Remember that conversation? And Mr. Scrushy said, Ken, I know how hard you're working. We won't always have to do this. Quote, "We are all going to make a lot of money and go to the lake and retire."

But by late 1999, after Ms. Henze came to him, Mr. Livesay told you what he did. He asked for a transfer to the I.T. department. And around this same time, remember Ms. Henze went up to Mr. Martin's office on the fifth floor and was upset and said, I'm not going to have any part of this. I won't be a part of this.

Remember who came to the door of Mr. Martin's office when he was meeting with Ms. Henze? The defendant. Remember Ms. Henze was upset, and the defendant said, Mike, I need to see you when you're through with that meeting. And Ms. Henze said it was at the end of the day, she needed to get back with her kids, and she left.

What did Mr. Martin tell you happened? He told Mr. Scrushy, he told his boss, that lower-level people were finding out. This was getting very hard to conceal, that Henze had figured it out, had filed the complaint.

Now, how did he find out about that complaint? Well, remember, we know how, because Mr. Tanner came right down to their office and said, I've got this complaint, can y'all handle it? He promised that he would take care of the compliance part, and Martin and Owens promised they would take care of their part.

What was Mr. Scrushy's response? His response was don't let it happen again. So that leaves Tanner.

There's no motive for Kelly Cullison. There is no motive for Diana Henze to tell you anything not true. Their corroboration, they have supported Martin and Owens and Livesay's accounts of this.

Now, you heard Tanner's testimony. Remember Mr. Tanner. He's the gentleman that lacked memory of the 1990's, but he did tell you that Ms. Cullison was a person of integrity. Does he have motive? I want you to listen to this clip.

(Excerpt of Government's Exhibit 701-22 played in open court.)

THE COURT: What is that exhibit number, please, ma'am?

MS. MARTIN: 701-22.

THE COURT: Thank you.

MS. MARTIN: Well, the defendant was right, Tony Tanner was the perfect person. But no incentive, no motive to do anything wrong? Ladies and gentlemen, you have the proxies. The proxies are the documents that were sent out to the investors. That's the one that has the little chart in it that shows the top five paid officers of HealthSouth each year.

You'll see Tony Tanner's name in there. He was paid more than the CFOs. Look at what incentive he had. Look at how many stock options that man had.

No, he just decided that in 1999, after learning about this, two weeks later, what did he do? He announced his retirement. He did the same thing his cofounder, Mr. Beam did. He decided the best way to get out of this fraud was to just to retire out of it, just to retire out of it.

And what did he tell you? It's nice to still have your stock options. You can have a hall named after you by Mr. Scrushy. And what did he say about the calling out from Mr. Scrushy before the SEC testimony he gave? I believe it was that Mr. Scrushy said, I've been there for you; now you need to be there for me. And he was there for him.

You know, the Henze complaint is simply a lost chapter in this saga of HealthSouth's fraud. The compliance department, it was designed to kick any serious complaints right up to the fifth floor. And there you've got Mr. Tanner, and it's just a fox guarding the hen house at that point.

Well, by early 2000, Mike Martin and Mr. Scrushy weren't seeing eye to eye. The stress had gotten there. I don't care whether he was fired, whether he retired. It doesn't matter. He moved on.

And as Mr. Renjilian, their accounting expert told you, in order to have collusion, you have people at the very top joining together to deceive auditors, to deceive the Board, to deceive the company.

You know, the company, the company had the right to think they were getting the honest services of their employees. The Board had that right. Investors had that right.

You've got to have the right group of people. Those were the words Mr. Renjilian said. You've got to have the right group of people to do a fraud.

So you've got to find a new CFO. Martin's gone. You fired him. He retired. It doesn't matter. And you've got to pick somebody on the inside.

So, finally that little mastermind, the guy that's been toiling down there in accounting since 1985, now he gets to be the mastermind.

You know why he's the mastermind today? He's the mastermind, because he was the only person that was left down there in HealthSouth that was in that accounting when Mr. Scrushy got indicted.

I mean, you can't have your mastermind now having been retired. So he can't use Beam as the mastermind. He can't use Martin as the mastermind.

So Mr. Owens tells you he knows, that he has conversations with the defendant. The defendant knows the size of the fraud. And it is undisputed testimony that Mr. Owens and Mr. Scrushy met on a regular basis throughout his time as the CFO.

He told you of one of the more interesting meetings in 2000 where they met on the lake actually. Mr. Scrushy was flying in on his seaplane and landed on the water. Mr. Owens on his Sea Doo comes up and ties up.

And what do they talk about? They decide in 2000, that the problem is really out in the field. They're never going to be able to get the numbers under control until the field starts making as much as their telling Wall Street they're going to make. They keep missing their budget out in the field.

So, they decide the right thing to do is to get rid of and get the retirement of Jim Bennett, the COO, the Chief Operating Officer. That's the person that you heard, by testimony that was read here, Mr. Foster and Mr. Taylor, the division presidents, they got rid of his boss, Mr. Bennett.

And that meant that somebody had to be the person that was over all of operations, the COO, the Chief Operating Officer. Guess who took that position for a year? Because just like with the bank teller, you can't bring somebody else into your drawer. He couldn't bring anybody in from the outside as the Chief Operating Officer of HealthSouth and expose the fraud.

So Mr. Scrushy takes the job, not only of chairman, not only of CEO, but also of President and the Chief Operating Officer for over a year. He's directly over those division presidents. He didn't want to elevate one of those division presidents up there. That would widen that circle of conspiracy.

But within a year, he did need to delegate some of his jobs. And so who did he move in to be the head of the operations? Bill Owens, an accountant, was made Chief Operating Officer.

Well, at this time, you need a new CFO. If Bill Owens is going to be promoted to COO, which was the recommendation of Mr. Scrushy to the Board, then you've got to promote somebody from within again as CFO, and they tabbed Weston Smith on this.

And Weston Smith told you that he rocked along with this fraud. He was there for about a year, as you can see from these years, as the -- he had been a controller. He came in as the Chief Financial Officer. But things changed because of Sarbanes-Oxley.

You will remember that there were a number of emails sent out by Bill Horton, the legal counsel for HealthSouth. He sent his emails to Scrushy, to Mr. Smith and to Mr. Owens. But a lot of the lower-level people saw these emails, too. And it was talking about Sarbanes-Oxley.

Sarbanes-Oxley came about as a result of accounting scandals in major corporations in 2000, 2001. And there was going to be a new certification that the CFO and the CEO was going to have to sign for the very first time on August the 14th of 2002.

And when Weston Smith read this and read the new criminal penalties, he didn't want to sign it. When the lower-level people read this new law and figured out that it's not just the people that sign these forms that get sent in, that can get tabbed with indictments and prosecution, but it's the people that are helping do all this work, the mechanics. Well, they all said, we're out of this. We don't want to do it anymore. We're going to have to stop this fraud.

And you heard on August the 5th of 2002, that Owens packed up some of the things in his office, and he walked out. And he told Bill Owens, I'm out. I'm not signing that Sarbanes-Oxley certification. I'm not signing on August the 14th of 2002. He left the building.

And then we heard testimony from Mr. Owens that he tried to reach Mr. Scrushy. And he called over and he reached Mary Esclavon, Mr. Scrushy's executive assistant. Ms. Esclavon, on these phone records we showed you, connected a call from Mr. Scrushy -- from Mr. Owens, excuse me, on his cell to Mr. Scrushy, who was at the Marin, Inc. building, a building out near his home in Birmingham, Alabama.

And when she was patching that call through, she told you, to make sure it was connected, she heard -- overheard Mr. Owens say to Mr. Scrushy, we have a problem. Weston has left the building. And he said he would come over, and they would talk.

Now, Owens drove over to the Marin building, and Scrushy told him, you need to get Smith back on the reservation. You remember Mr. Owens said he called Smith, and Smith said Mr. Owens called him, and this record reflects calls. And he said come on over and let Richard and me talk to you. He said, no, he didn't want to go over there, because he knew how persuasive Richard could be. And he said, no, I'm not going to do that.

And then Bill Owens told Richard Scrushy, we've got to come up with a plan. You know, we've got to -- things have come to a boil now. We've got to do something. So they did devise a plan, and they told you about that plan.

Mr. Owens told you how they thought, well, all right, one thing we can do is we can go back to the plan of trying to split the company like we proposed in 1999. Wall Street might like that, releases value. We'll split the company and have this one clean company. That's where the doctors have access to the records in the surgical center business. And as a carrot, to get Weston back to sign those forms, we will let him be the CFO of that clean division.

The other thing that we can do is we know about this Transmittal 1753, and we know it's only going to be a small impact, ten, twenty million. But what we'll do is we'll use that and make it a bigger number, and that way we can pull some of that fraud off. And then, finally, the last thing we're going to do is we're going to stop.

And look at the forensic audit. Look when they stopped. They stopped. This is it. You start going to a negative number. They're taking it out. So they said that's what we're going to do.

Bill Owens called up Weston Smith again. He said meet me. Let me talk to you. And that's where they met and drove around on 280, and they talked about this plan.

And you know the rest of the story. Weston Smith came in the next day. After they had had lunch in the executive dining, he saw Scrushy outside in the hallway. Scrushy took him in his office, and he said, Weston, we're not going to do it anymore. We're going to play it straight. We're not going to fudge our numbers anymore. We're going to stop this. We're going to clean up our balance sheet over time.

This, ladies and gentlemen, was later referred to as the Weston Smith juncture. And you're going to hear the defendant use the term "Weston Smith juncture" when he talks to Bill Owens. And he's talking about that time when Weston Smith didn't really want to sign the form, but sort of had to, went along.

Now, two days after this turmoil, Weston Smith and Richard Scrushy host another earnings call. Just days after all this, there's another earnings call, and that's wire fraud Fifteen.

In that one, you heard Richard Scrushy, when we played the snippet earlier in court, he said, very strong second quarter results, twenty cents EPS, met consensus estimates, up thirty-three percent over the second quarter of last year.

And they released the good news to the public, and they released the good news to their Board on August the 7th, but then they've got to put that plan for the clean-up into action.

And look at the press release. There's a press release that comes out around August the 26th. They have a special board meeting. And they do what? They name Richard Scrushy as the chairman of the two companies, because he can't be CEO of both. They move Weston Smith, like they promised. He elevates Bill Owens to the role of CEO of HealthSouth, and they announce the huge hit of one hundred seventy-five million dollars. That all comes out in one press release.

And they need a new CFO of HealthSouth, and that's when McVay, Tadd McVay, is brought over the wall. And Tadd McVay told you he was told that they weren't going to -- they were stopping the fraud.

They weren't going to put anything new on the income statement. They weren't going to inflate those numbers. They would report real earnings, but they would have to clean up the balance sheet over time. That stuff was still in there. It was still in the PP&E. It was still in the cash. So they had to clean that up over time.

And remember Mr. McVay told you that Scrushy said to him, you know, all companies fudge their numbers. You know, we're a good group of people. We're a good group of guys, and we're going to work this out.

But once they made that announcement in August, you know the rest of that story, the stock plummeted. Remember it dropped sixty percent in value in two days, in two days? It was down below four dollars a share. And within hours, shareholder lawsuits were filed by investors that were very upset. They thought something was wrong in this company. The SEC, in the month of September of 2002, opened an investigation.

As Chuck Newhall told you, by this time, the investing public had lost all confidence in HealthSouth. And what did Ms. Givens tell you? She said that the Board was very upset, because they thought Mr. Owens had miscalculated this Transmittal 1753, that he had mishandled it, that he had not told Mr. Scrushy about it, that Mr. Scrushy should have known about it.

But remember what she also told you? That she didn't know about the private conversations they were having. She didn't know about those. She didn't know about that cover up.

Ladies and gentlemen, by the spring of 2002, the SEC was taking depositions. You heard that they took Mr. Scrushy's deposition. On March the 14th of 2002, in my office, the grand jury here in the Northern District of Alabama had opened a criminal investigation, and the grand jury here had issued subpoenas. And Mr. Owens and Mr. Scrushy knew that a criminal investigation would result in fingers going their way.

And the spotlight of federal law enforcement was shining on all these top executives of HealthSouth. It wasn't one person. It was all of them. It was a broad light.

But instead of moving from that light, Bill Owens and Mr. Smith came toward the light, and they took us inside that conspiracy. And when Mr. Smith entered his plea of guilty, he agreed to plead guilty to crimes that carry twenty-five years in prison. That was his plea deal, twenty-five years.

And when Mr. Owens pled guilty in this courtroom to his crimes, you know what he was dealing for? Thirty years was what we offered him. Owens wore a wire, and you will hear those tapes in a minute.

I want to talk about those deals. Before I talk about the tapes, I just want to say that the government, law enforcement, we need cooperating witnesses. We can't learn about conspiracies from just anybody.

They want to talk about all the fifty-two thousand employees at HealthSouth. Well, you know what? About fifty-one thousand nine hundred and eighty of them couldn't have helped us to get inside this crime. We needed the people that we went to, and we started with these two, and we worked our way out. We looked at a lot of people.

And during their cooperation -- and many of them await sentencing. Some of them, you know, have already been sentenced. They helped us to see who was involved in the fraud. We looked at documents. They told us where we might look, people we might interview, things that had happened.

Judge Bowdre charged you yesterday that plea bargaining is lawful and proper and is provided for in the rules of the court. And your common sense tells you to get inside a conspiracy, you need just what Mr. Scrushy had put together, the right group of people.

But we didn't just rely on that right group of people. That's not what we came in here with. We also supported what that right group of people said with forensic audit, which showed how this fraud did escalate and grow and then was stopped. We brought you executive secretaries, flight log records, phone calls, lots of supporting evidence.

Now, I expect the defense to tell you to reject all of the Chief Financial Officers' testimony. They have to say that. They have to say that. What did he know because of what they said to him? They want you to turn a blind eye to all of that evidence.

Now, let's go to the last set of evidence I want to go through and show how the defendant knew, and that's by what he said. These tapes were played early on in the case, because they were made with Mr. Owens. So they were played early on, and they were only played once. And that was before you really had the full picture of the conspiracy, how you knew everything fit together from 1996 to 2003.

So I encourage you to listen to these tapes, they are in evidence, and put them in proper context. We don't have time, during this brief time with you this morning, to go and listen to all the tapes.

What I have done is created a chart that I hope will help you a bit to organize them, because you had the original numbers, you had government's exhibit numbers and then times and dates and types of machines, and I thought that might have been confusing.

The way I like to think about the tapes is two, two and two. That's because there were two tapes made on Monday morning, the 17th of March. There were two tapes made on Monday afternoon, and there were two tapes made on Tuesday, one in the morning and one in the afternoon.

So I want to start by saying the Monday morning recordings, that's the one where the body recorder that was sewn into the tie malfunctioned, and nothing was on that. That's the one where the cell phone was acting as the transmitter, and the FBI agents were off site and were just monitoring.

And because of the micro disk having a very short capacity and the battery life, they would just cut it on and off and monitor it when they heard Mr. Scrushy's voice, because they thought, of course, the tie was working and would get everything. They were there as a back up. Those are the tapes that are poor quality.

Now, on the afternoon of Monday, everything worked fine, because Mr. Owens called in from home, so it's a recording on a phone call, so it's clear. The next day the body recorder worked, and those tapes are good clarity.

I want to talk about the first tape on Monday morning, the one that was picked up on the back. I want to say, first of all, you heard from one expert on their side about the tapes. And what he said was that he didn't examine the afternoon of Monday, and he didn't examine the Tuesday tapes; but, because of the way they were made, they could not be altered. He gave no testimony to the contrary.

And what he said about the Monday morning tapes was there was no evidence of alterations or deletions. He told you that it was confusing, because he didn't know when they had turned it on and when they had turned it off. And that's because of just what the FBI agents told you, they were monitoring it. That's why it's that way.

But what Mr. Ginsberg did tell you was that whatever is on the tape was not altered. So when you hear the defendant's voice, that is what he said. That is what their expert told you.

So what I would like to do is just set up -- we're going to play a short clip from the first tape on the morning of March the 17th. This first one is where Bill Owens, you remember, is in his office, and Ken Livesay is in there standing against the wall. Ken Livesay told you that.

And Mr. Scrushy comes down the office and comes -- comes down the hall and comes into Mr. Owens' office, and he's really pumped, because he's had his deposition before the SEC the Friday before. And he says, this didn't happen; you know, swear to it. But, man, this went well. They're on a witch hunt. They hadn't got anything. They didn't ask me nothing about the numbers.

Let's hear the clip.

(Excerpt of Government's Exhibit 701-2 played in open court.)

MS. MARTIN: You see where he says to Ken Livesay, he turns and he says, you need to hear this, because you were sitting under the CFO for a long time.

THE COURT: Ms. Martin, what is the exhibit number for the record, please, ma'am?

MS. PHILIP: 701-2.

MS. MARTIN: 701-2. Thank you, Judge. Remember Mr. Livesay is the one he gave the pep talk to that just didn't work. By 1999, he went to I.T. But he's here telling them that, they ain't got you know what. They ain't got nothing. They didn't ask me nothing about numbers.

And he's making a special reference to somebody that left accounting in 1999. And he was so excited, you can hear, that they're not looking at the numbers.

And when you listen to the full tape, it's about ten to twelve minutes, you will hear him go on to say the investigation is about nothing other than insider trading. And Bill Owens says, well, that's good news. Hell, yeah, that's good news. Yeah, that's good news.

What else did he think they were investigating? Why is he so pleased that it's not about the numbers?

Well, the second tape, let's go to that, because it gives you more evidence. The second tape is also in the morning on Monday, and this is when Bill Owens goes down into the defendant's office, and he's going to try to engage him in a conversation about this, and he's going to use two events.

He's going to say, I've told my wife, and she's going to divorce me if I keep signing the phony financial statements.

I mean, you've got to come up with something, ladies and gentlemen, if you're going to come down and talk about this at the end of something you've been involved in for all of six or seven years.

And remember on that day, they were supposed to file something with the SEC? They had to file a 10-Q that was amended, and it was going to take the defendant's signature and Mr. Owens'.

So they decide -- he talks with the FBI, and they decide you're going to go down and say, I don't want to sign that form, and it's because of my wife. So that is the set up for that conversation.

I want you to listen. Mr. Owens says, when Mr. Scrushy says stop what, his answer is, you know, the stuff in the balance sheet, amount in cash, PP&E.

And listen for the defendant's response. Does she not realize what she's doing to you? And then it continues. And Owens says, my wife says, how can y'all continue to lie this way.

And what is the CEO of this Fortune 500 company's response to his CFO? He drops that voice so low, are you wired?

And remember when you're listening to this where this conversation took place. Owens had gone down to the defendant's office, and he moved him around, when they started talking about this, into that back hallway back by his private bath. If we could have this clip, please.

(Excerpt of Government's Exhibit Number 701-003 played in open court.)

THE COURT: The exhibit number please?

MS. MARTIN: Exhibit Number 701-3.

THE COURT: Thank you.

MS. MARTIN: Stuff in the balance sheet. Does she not realize what she's doing to you? Are you wired?

Listen to the full conversation, because he goes on and you will hear the defendant say that he prays everyday that God will give us time to get on the other side. And he warns Bill Owens, if you want to go public with all this, it's all gone, everybody goes down.

What's he praying to get on the other side of? I mean, just that morning he was really pumped. He was really pumped, it's only insider trading, they're not looking at the numbers.

What's Bill Owens talking about? I don't want to sign, I don't think I can sign the certification. It's the numbers. It's the fraud.

He's worrying that his CFO, one of the last of the Mohicans in this fraud, he's cracking, too. I mean, he's already had Beam leave on retirement. Tanner has left on retirement. Martin is gone. Smith fell apart and had to be moved over to a clean division. McVay can't handle the pressure. Now his big dog is turning on him. I want you to listen to the next clip.

(Excerpt of Government's Exhibit Number 701-003 played in open court.)

MS. MARTIN: That's 701-3 for the record.

THE COURT. Thank you.

MS. MARTIN: You're not a dishonest person. Neither am I, in the hushed tones, quiet tones. You see he encourages Owens, we have to get on the other side. Does he say -- then you will hear on the rest of the tape, Owens told you the defendant held his hands out in front of him like handcuffs. He says, on the other side, you've got a chance. On the other side, you're just -- if you don't get on the other side, you're just going down there and giving yourself to them. Listen to how he says it.

(Excerpt of Government's Exhibit 701-003 played in open court.)

MS. MARTIN: 701-3. It's a continuation. Does that show he knows something? If you just go on down there, you're just going to give yourself to them. Who is them? The SEC is over in Atlanta, ladies and gentlemen. They don't have an office here. The them is us, the them is the Department of Justice.

And the defendant ends that hushed conversation with this pep talk. Listen to the leader of the conspiracy encouraging Owens to lead HealthSouth out of the fraud. He says, you and I will take it out, don't destroy this.

(Excerpt of Government's Exhibit 701-003 played in open court.)

MS. MARTIN: It's part of that same clip, 701-3. What is on the other side? What does he know? What he is so concerned about that they've got to lead it out, and you don't want to destroy this?

He needs this CFO. This defendant, we've never said, made the journal entries. It took the accountants to make the journal entries. It took the CEO to direct it.

What does it show? It shows knowledge. It shows participation in this conspiracy. And it shows it, ladies and gentlemen, beyond a reasonable doubt.

Now, in the afternoon, there are two phone calls, because you will remember after these morning discussions, Mr. Owens said, I'm going to go home, try to talk to my wife. So there were two calls back to HealthSouth that afternoon so that he could report in.

Now, the first call was at 1:45 p.m. And in it, the defendant warns Owens, don't go do something stupid. And he compared it to walking into a propeller blade.

Then the second call was about ten minutes later after he had obviously spoken to Bill Horton and gotten an extension of time to file that 10-Q, the one he was refusing to sign that day. And this is a business call, ladies and gentlemen. He is calling his boss to say, we've gotten an extension of time.

And I want you to listen to what Richard Scrushy, on this business call about signing the 10-Q, says. It shows what he's worried about.

(Excerpt of Government's Exhibit 701-006 played in open court.)

MS. MARTIN: 701-6. What does that show knowledge of? What does 10-QA signing -- what does being two days late on that have to do with he's got kids at home, and they need their daddy? Where did he think that daddy was going to go?

SEC is a civil organization. They fine people for insider trading. Did daddy think he was going to go to prison?

Just that morning, this pumped-up man marches down there to the CFO's office, said, hell, they ain't got shit, Bill. They're not looking at the numbers.

And now he's -- I mean, this is what, 2:00 o'clock in the afternoon, and he's, I got eight kids, and they need their daddy. Something big has happened, hasn't it? It's fixing to fall apart. And it did within twenty-four hours.

The next day, the body mikes work, so we've got better clarity on these recordings. I just wanted to set the stage for the morning conversation. The next day Owens returns to work. He goes to his office.

His boss, Scrushy, comes down the hall, talks to him. And then the defendant brings up the issue of his conversation with the wife, okay, you know, the wife that's going to divorce him if he signs another phony financial statement.

And listen to what he says, because then Bill Owens says, well, are you comfortable talking here, and he says, no, not here. And that's why there isn't anything on the morning conversation and why at noon time, you hear him saying, I didn't really get anything. It's because the defendant didn't want to speak in Mr. Owens' office.

Now, why would you not want to speak in your CFO's office? What are you concerned about? I want you to remember Ms. Esclavon's testimony that sometime in August of 2002, around that Weston Smith juncture, that was when Mr. Scrushy called her in the office and said watch out, be careful, don't give my itinerary -- don't give my schedule to Goodreau, my body guard. Be very cautious. Offices might be bugged. She said that she thought he was acting paranoid.

Listen to this clip from the Monday morning meeting on March 18th.

(Excerpt of Government's Exhibit 701-007 played in open court.)

MS. MARTIN: 701-7. Now, we heard already testimony there was a Monday morning meeting that Tuesday, and then there was an officers' meeting. So you've got a room full of people that Mr. Owens and Mr. Scrushy have just left before leading into this last conversation, which was on Tuesday afternoon.

I want you to listen, because the CFO, Bill Owens, uses very charged words in this conversation. He uses words like "phony financial statement." He names two companies that have been involved in accounting scandals. He talks about prison.

Now, what would you do, if you were the Fortune 500 CEO of this company, a financial genius, as described by Newhall, when you hear this being said? I want you to think about that, what an honest person would do, what an honest person's response would be, what a person who did not know would be responding. And I want you to listen to this defendant's response.

(Excerpt of Government's Exhibit 701-007 played in open court.)

MS. MARTIN: Is that where y'all left it? Is he a marriage counselor? Incredible. And the talk continues. Owens asked him for advice. The mastermind is asking for advice, what to do with his wife.

They had just come out of that full office of HealthSouth officers, and the salesman, Richard Scrushy, goes to work. He reminds him in this clip, Mr. Owens, how well the company is doing, how people think the deck's clean, and how all those people in that room, all your friends are at risk. And as the kicker, he adds in there, and, Bill, you've already signed documents. It shows he's known about this all along. You've already signed documents.

What does it tell you? That Richard Scrushy knew about the past filings. This isn't something new that's been dropped on him this day, and he's in shock. He's known about it.

Listen also, he isn't concerned about the 10-Q. He tells you that. He says, that needs to be signed -- when Owens says, well, we have two days, because he's gotten that extension, listen, because Scrushy says I'm talking about the other stuff.