On Wednesday, William Owens, current head of financial operations at HealthSouth, pleaded guilty to conspiracy to commit wire fraud and securities fraud and admitted that he willingly certified HealthSouth's false earnings statements in violation of the Sarbanes-Oxley Act. HealthSouth promptly fired Owens on Thursday.

Owens' plea in federal court came a week after the former CFO, Weston Smith, agreed to plead guilty to similar charges. Both Owens and Smith agreed to cooperate with the government. The Securities and Exchange Commission has also accused HealthSouth's CEO, Richard Scrushy, of inflating the company's earnings.

Also on Thursday, HealthSouth announced its lenders have determined it is in default under the terms of its credit facility. The company said it cannot repay about $350 million of debt due April 1.

As for the company's auditor, Ernst & Young, it may not be in the clear yet. Alice Martin, the U.S. Attorney investigating the case, has indicated she's on the lookout for anyone who had knowledge of HealthSouth's wrongdoing.

Experts say astute readers of HealthSouth's 2001 CEO shareholder letter would have detected potential financial problems. L.J. Rittenhouse, president of New York-based andBEYOND Communications Inc., which conducts an annual survey of Fortune 500 CEO shareholder letters, said HealthSouth's 2001 letter fails three simple tests of financial reporting integrity: it failed to distinguish between GAAP and pro-forma earnings; it failed to demonstrate capital stewardship; and it boasted of meeting Wall Street's expectations.