Scrushy Faces New Charges of Bribing State Officials
By MILT FREUDENHEIM, NY TIMES

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Richard M. Scrushy, the embattled founder of the HealthSouth hospital chain who was acquitted of fraud charges earlier this year, was indicted on new criminal charges yesterday in a 30-count indictment that accuses him of paying $500,000 in bribes to an Alabama state official.

The indictment, by a federal grand jury in Montgomery, Ala., accuses Mr. Scrushy, 53, of making two payments to Don Siegelman, the former Alabama governor, in exchange for appointing Mr. Scrushy to a state board that approves hospital construction.

A lawyer for Mr. Scrushy, Donald Watkins, said in an interview last night that the charges were "ridiculous." He called the transaction perfectly legitimate. "A HealthSouth check went into a lawful political action committee registered with the secretary of state," he said. The contribution was disclosed, he said, and "nothing was sought in exchange."

Mr. Watkins accused federal prosecutors of "retaliating" for Mr. Scrushy's acquittal of federal charges in a trial in Birmingham, Ala., involving a $2.7 billion security fraud at HealthSouth, the largest operator of rehabilitation hospitals.

"Apparently the spanking we gave them in Birmingham was not sufficient," Mr. Watkins said. "We will have to do a better job in Montgomery."

Mr. Siegelman, 59, who has declared his candidacy in the Democratic primary, was charged with violating the Racketeer Influenced and Corrupt Organizations Act, known as RICO, and with mail and wire fraud as well as bribery, extortion and obstruction of justice.

The charges against Mr. Scrushy and Mr. Siegelman were filed in May but kept under seal so the fraud trial in Birmingham would not be disrupted, the Justice Department said.

Two senior officials in the Siegelman administration were also charged in the case: Paul Hamrick, a former chief of staff to the governor, and Gary Roberts, who was director of the state department of transportation.

A federal jury in Birmingham found Mr. Scrushy not guilty of charges that he directed a long-running fraud at HealthSouth with the help of senior company officials. Five former chief financial officers pleaded guilty in that case. Mr. Scrushy said he had no knowledge of the fraud. He also faces shareholder lawsuits accusing him of harming investors by making statements that drove up HealthSouth stock.

Pamela H. Bucy, a law professor at the University of Alabama, noted that separate federal charges against the former governor, involving a Tuscaloosa physician who was seeking a state Medicaid contract, were dropped last year.

Mr. Siegelman was defeated by Bob Riley, a Republican and the current governor. If Mr. Siegelman wins the primary he will probably face Governor Riley or a rival candidate, Roy Moore, the former chief justice of the Alabama Supreme Court, who was ousted in 2003 after he defied a federal judge's order to remove the Ten Commandments from the state Supreme Court building.

SEC Charges HealthSouth Corp. CEO Richard Scrushy With $1.4 Billion Accounting Fraud
Trading in HealthSouth Securities Is Suspended;
Commission Action Seeks Injunction, Money Penalties, Officer and Director Bar
FOR IMMEDIATE RELEASE
2003-34

Washington, D.C., March 19, 2003  The Securities and Exchange Commission today charged HealthSouth Corp., the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, and its Chief Executive Officer and Chairman Richard M. Scrushy with a massive accounting fraud. The Commission's complaint, filed in federal district court in Birmingham, Ala., alleges that since 1999, at the insistence of Scrushy, HealthSouth systematically overstated its earnings by at least $1.4 billion in order to meet or exceed Wall Street earnings expectations. The false increases in earnings were matched by false increases in HealthSouth's assets. By the third quarter of 2002, HealthSouth's assets were overstated by at least $800 million, or approximately 10 percent.

Pursuant to a separate Commission order issued this morning, trading in the securities of HealthSouth was suspended for two business days due to the materially misleading information in the marketplace.

The complaint further alleges that, following the Commission's order last year requiring executive officers of major public companies to certify the accuracy and completeness of their companies' financial statements, Scrushy certified HealthSouth's financial statements when he knew or was reckless in not knowing they were materially false and misleading.

"HealthSouth's fraud represents an appalling betrayal of investors," said Stephen M. Cutler, the SEC's Director of Enforcement. "HealthSouth's standard operating procedure was to manipulate the company's earnings to create the false impression that the company was meeting Wall Street's expectations."

Richard P. Wessel, District Administrator of the SEC's Atlanta District Office, added: "The Commission's action against HealthSouth is another example of the excellent coordination and cooperation that has become the hallmark of efforts by the Commission and the Department of Justice to combat financial fraud. By bringing to bear the expertise of both agencies, we achieve maximum deterrence and greater relief for investors."

The Commission alleges that HealthSouth and Scrushy's actions violated and/or aided and abetted violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws. For these violations, the Commission is seeking a permanent injunction against HealthSouth and Scrushy, civil money penalties and disgorgement of all ill-gotten gains or losses avoided by both defendants, and an order prohibiting Scrushy from ever serving as an officer or director of a public company.

The Commission thanks the U.S. Attorney's Office for the Northern District of Alabama, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter.

The Commission's investigation is continuing.

For further information contact:

Richard P. Wessel, District Administrator, Atlanta District Office: (404) 842-7600

Richard P. Murphy, Assistant District Administrator, Atlanta District Office: (404) 842-7600.

Ex-HealthSouth CEO Scrushy walks
Jury finds Richard Scrushy not guilty for role in $2.7 billion accounting fraud at health care firm.
June 28, 2005: 4:37 PM EDT
By Krysten Crawford, CNN/Money staff writer

NEW YORK (CNN/Money) - Richard Scrushy, the founder and former CEO of HealthSouth Corp., was found not guilty Tuesday on all charges in the $2.7 billion accounting fraud at the hospital chain.

Scrushy was the first chief executive charged with violating the 2002 Sarbanes-Oxley Act, a corporate reform measure enacted after a wave of corporate scandals that followed the collapse of Enron. Five former chief financial officers testified against him.

A federal jury in Alabama began deliberating about six weeks ago and appeared to be deadlocked.Last week, U.S. District Judge Karon Bowdre replaced one juror due to illness and instructed the reconfigured 12-member panel to start over.

As the verdict was read in the early afternoon Tuesday, defense lawyers were crying while the prosecutors sat stone-faced, according to an eyewitness in the courtroom. Scrushy hugged his wife and his pastor.

Scrushy's acquittal, while a big blow to prosecutors, comes after some recent government wins in its campaign against corporate fraud. Last week, hefty sentences were given to two former Adelphia Communications executives. Two weeks ago, former Tyco CEO Dennis Kozlowski was found guilty. Ex-WorldCom CEO Bernard Ebbers was convicted in March.

Speaking to reporters outside the federal courthouse in Birmingham, Scrushy lashed out at prosecutors for what he called "two years of torture."

The 52-year-old founder and ex-CEO of HealthSouth faced 36 counts, including fraud, money laundering and conspiracy charges. Prosecutors accused Scrushy of masterminding the fraud in order to inflate the company's stock price and to finance his multiple homes, luxury cars and high-priced art.

Scrushy did not take the stand in his own defense, but his lawyers argued at trial that other former HealthSouth executives committed the fraud without Scrushy's knowledge. Other executives faced with similar charges, including former WorldCom CEO Bernard Ebbers, have used the same defense and were convicted.

"I'm surprised," said Stanley Twardy, a former U.S. Attorney for Connecticut who is now in private practice at Day, Berry & Howard. "This is probably the first time that the defense of 'I didn't know' denials has worked for a former chairman or CEO. This may be the first time that the Sergeant Schultz defense has worked."

Jacob Frenkel, a former federal prosecutor, noted the number of ex-HealthSouth CFOs who pointed their fingers at Scrushy.

"If you look at the evidence and the firepower that the government lined up for this case, the outcome is astounding," he said

Frenkel said it's too early to know what impact last week's juror switch had on the deliberations. Given that the jury had earlier told Judge Bowdre that it could not agree on a verdict, the assumption is that the shakeup was significant.

Twardy said drawn-out deliberations typically point to an acquittal. "The jury was out for so long and that is usually a good sign for the defense," he said.

After the verdict, Scrushy emerged from the Hugo L. Black courthouse looking the same as he did before he entered to hear his fate: calm. Scrushy, a well-known figure in Birmingham and host of his own television show, made it clear that he considers himself to be the victim of overzealous prosecutors.

""There are a lot of wrongs that need to be made right," said Scrushy, adding that he planned to discuss his case in more detail at a later date. Scrushy said that, now that he has his acquittal, "I'm going to let my family get theirs."

Minutes later, Alice Martin, the lead prosecutor and the U.S. Attorney for the Northern District of Alabama, told reporters that she was "shocked" and "disappointed" by the verdict, but acknowledged that government lawyers failed to make their case that Scrushy had willfully engaged in criminal conduct.

Prosecutors vow to appeal
Martin declined to speculate about any mistakes she and her team may have made, saying she could not know until the jurors discuss their deliberations.

She said, however, that prosecutors would appeal the counts brought against Scrushy, including a perjury charge, that Judge Bowdre dismissed. If the appeal succeeds, Martin said Scrushy will stand trial on those counts.

In a 2003 indictment, Scrushywas accused of faking HealthSouth's profits from 1996 until 2002. He was also charged under a provision in the Sarbanes-Oxley law that requires CEOs and chief financial officers of public companies to vouch for the accuracy of all quarterly and annual financial reports and to risk criminal prosecution for any deception.

Scrushy's trial was the first test case of that provision. Martin said Tuesday that she did not think that Scrushy's acquittal on that count "says anything" about or would lead to changes to Sarbanes-Oxley.

Nor, added Martin, would the Scrushy setback change prosecutors' efforts to punish corporate fraud.

Of the corporate criminal trials that await, the early 2006 prosecution of former Enron honchos Kenneth Lay and Jeffrey Skilling is the biggest.

Both Frenkel and Twardy, the former federal prosecutors, warned against drawing conclusions from the Scrushy, Kozlowksi and Ebbers' trials and what they could mean for Lay & Co.

"The bottom line is, different jury, different city, different facts," said Frenkel.

HealthSouth to Scrushy: No job for you
HealthSouth (Research), based in Birmingham, Ala., owns a national chain of hospitals and outpatient clinics. The company's stock was delisted from the New York Stock Exchange in 2003 and now trades over the counter for around $6.00, up from about 50 cents two years ago.

HealthSouth stock plunged in 2003 after the company came under federal investigation and restated its financial results.

In a statement issued Tuesday, HealthSouth CEO Jay Grinney said the company looked forward "to putting the past behind us and moving forward." Scrushy's trial, he said, had no direct impact on the company.

Bob May, HealthSouth's chairman, said the company's board and its new management "remain appalled by the multi-billion dollar fraud that took place under Mr. Scrushy's management and the environment under which such fraud could occur."

May added: "Under no circumstances will Mr. Scrushy be offered any position within the company by this management team or by this Board of Directors."

Scrushy still faces numerous civil lawsuits from angry investors.

For the latest on other high-profile corporate scandals, click here.

Jury Acquits HealthSouth Founder of All Charges
By Carrie Johnson, washingtonpost.com, Wednesday, June 29, 2005; A01

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A Birmingham jury acquitted health care firm founder Richard M. Scrushy of three dozen fraud and money-laundering charges, dealing a powerful blow to government efforts to prosecute executives for financial misdeeds.

The seven-man, five-woman jury rendered a verdict after weeks of sometimes rocky deliberations focused on Scrushy's role in a $2.7 billion accounting fraud at HealthSouth Corp.

The acquittal marks the first major setback for federal prosecutors after a string of recent business fraud convictions and a failure in the first effort to hold a chief executive accountable under a corporate responsibility law passed after blowups at Enron Corp. and WorldCom Inc. Scrushy, 52, was the first chief executive to face charges of violating the 2002 Sarbanes-Oxley Act, which requires top officials to vouch for the accuracy of financial statements.

Outside the courthouse, Scrushy told reporters that he was bolstered by the verdict. "There are a lot of wrongs that need to be made right," he said. "Thank God for this."

Legal experts expressed surprise at the prosecution's loss, in part because the government had gathered 15 guilty pleas from other former HealthSouth executives. All five of the rehabilitation hospital chain's finance chiefs testified against Scrushy in the course of the trial, which began Jan. 5.

"This is an astonishing result," District-based defense lawyer James D. Wareham said. "It will change the way fraud cases are defended in certain regions of the country and will induce the Department of Justice to expand its overuse of the less defendant-friendly Southern District of New York as its forum of choice."

In a rare development for a white-collar fraud case, one insider had made secret audiotapes of Scrushy with a recording device sewn into his necktie. The March 2003 tapes captured Scrushy saying, "I am convinced there are 8,000 companies out there right now that's got [junk] on their balance sheets."

But defense lawyers argued that Scrushy never employed words such as "fraud" or "illegal" -- and that no documents or e-mails produced in the course of the trial directly implicated their client. They called the star witness against Scrushy, former finance chief William T. Owens, a "big rat."

U.S. Attorney Alice H. Martin, who tried the case alongside prosecutors from the Justice Department's Washington-based Fraud Section, said in an interview that she was disappointed with the verdict given the strong evidence.

Prosecutors are appealing the judge's dismissal of perjury and obstruction-of-justice charges. Martin said she would try Scrushy on those charges if they are reinstated by an appeals court. A separate civil case against Scrushy filed by the Securities and Exchange Commission continues, as do scores of lawsuits filed by HealthSouth shareholders.

The unusual trial, which lasted almost six months, featured a judge who described herself as a "neophyte" in criminal law, highly paid defense lawyers who appealed to religion and race to backstop their arguments, and government lawyers who appeared to irritate the judge with their persistent questions.

The jury, composed of seven blacks and five whites, mostly had blue-collar backgrounds and little familiarity with business practices. Deliberations spread over 21 days -- punctuated by repeated interruptions because of illness and vacations. The jurors reported they were deadlocked June 3, but U.S. District Judge Karon O. Bowdre urged them to continue. The judge replaced one older white male juror with a black male alternate June 22 because the older juror had developed health problems. After five more days of talks, the jury handed down its verdict.

"The reason behind our verdict was the lack of substantial evidence and witnesses' credibility," jurors said in a statement released by the court.

Later, eight jurors agreed to speak with reporters at the courthouse without revealing their names. Their names remained under seal until today under judge's orders. "The smoking gun wasn't pointing toward Mr. Scrushy," one male juror told the Associated Press. Another juror said race played no role in their decision.

Though he never testified, Scrushy made his case -- both in and out of court. The defendant, who came from relatively modest beginnings as a physical therapist, starred in a 30-minute television program called "Viewpoint" on weekday mornings. Scrushy and his wife, Leslie, read Bible verses. Scrushy, who is white, preached at predominantly black churches and donated more than $1 million to the Guiding Light Baptist church, which he joined shortly before he was indicted in 2003. He invited black pastors, some wearing clerical collars, to occupy benches in the courtroom in the jury's line of sight.

Defense lawyer Donald V. Watkins, a Birmingham fixture and owner of a local bank, entreated jurors in his closing to "send a message to Washington" and to remember the days of segregated water fountains and unequal treatment for blacks.

Watkins said in an interview yesterday that prosecutors had blundered by trying Scrushy in Alabama. "You never fight a man on his home turf," Watkins said. "Corporate leaders generate so much goodwill for actions they do over time that it's hard for an outsider to come in and persuade them otherwise."

The Scrushy acquittal came after juries in New York convicted former executives at Adelphia Communications Corp., WorldCom Inc. and Tyco International Ltd.

But unlike several chief executives who were convicted, Scrushy never took the witness stand. That left jurors to evaluate only the credibility of former HealthSouth officials who pleaded guilty and testified against him in exchange for more lenient sentences -- a fact the defense hammered repeatedly for the jury.

"Criminal cases that rely on co-conspirators are very difficult to prove unless you can corroborate what the co-conspirators say," said Patrick D. Robbins, a former federal prosecutor in San Francisco. He said that point was driven home when the jury asked to rehear the tapes of Scrushy during its deliberations. "The jury obviously concluded the tape was not incriminating enough."

That could give comfort to former Enron executives Kenneth L. Lay and Jeffrey K. Skilling, who await trial in January on fraud and conspiracy charges. Both men have mounted aggressive public defenses that point the finger at subordinates who pleaded guilty in exchange for lighter sentences.

Legal experts said it was difficult to predict how the Sarbanes-Oxley criminal charge might fare in a different trial and with a different jury -- one that did not soundly reject every aspect of the government's case.

"Sarbanes-Oxley is a good tool for prosecutors," U.S. Attorney Martin said. "I would look for the statute to continue to be used."

Prosecutors claimed that Scrushy pressured subordinates to meet Wall Street earnings targets and inflate profit by nearly $3 billion. The government said he spent more than $200 million in the course of the fraud, buying a Cessna jet, waterfront property on the Gulf Coast, Impressionist paintings and 21-carat diamond jewelry.

HealthSouth agreed to pay $100 million to the Securities and Exchange Commission this month to settle civil charges related to the fraud. The company operates with a new management team, but Scrushy remains a member of the board and one of the largest individual shareholders. HealthSouth's new leaders restated earnings by more than $1 billion Monday to erase some of the fraud off the books.

Robert P. May, the company's chairman, said in a statement that he was "appalled by the multibillion-dollar fraud that took place under Mr. Scrushy's management and the environment under which such fraud could occur." He said Scrushy would not be welcome at HealthSouth under any circumstances.

© 2005 The Washington Post Company

The Lord and Richard Scrushy
By Michael Kinsley, washingtonpost.com, Sunday, July 3, 2005; B07

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God works in mysterious ways, but his or her decision to acquit Richard Scrushy, former CEO of HealthSouth Corp., on all charges of financial fraud is especially inscrutable. Five consecutive HealthSouth chief financial officers admitted to cooking the books and copped a plea. They all fingered Scrushy. But jurors chose to believe that the man on top knew nothing about what was going on directly below him.

That kind of ignorance doesn't come cheap. No one denies there was massive fraud at HealthSouth. The government estimates that Scrushy made almost $300 million from the alleged fraud, and he'll get to keep it minus lawyer's fees. Other prominent business defendants have tried the ignorance defense but found that juries tend to think that the more you're paid, the more you ought to know about what's going on around you. Bernard Ebbers of Worldcom Corp., apparently the most convincing of the recent CEO ignoramus wannabes, is facing prosecutors' request for a life sentence.

Experts say the Scrushy prosecution should have been a slam-dunk. Even the Wall Street Journal editorial page seemed amazed that he got off. The Journal approved, of course, but couldn't really explain why. Meanwhile, jurors quoted in the papers said they were bothered by things like the lack of Scrushy fingerprints on copies of the crucial documents.

Only one word can describe Scrushy's acquittal. It is a miracle.

Miracles happen, just like that other stuff. But miracles don't just happen. They require work. Money doesn't hurt, either. When Scrushy was indicted, he hired God. Less inspired defendants might have settled for the late Johnnie Cochran or Jack Abramoff. Scrushy, though, went straight to the top.

He left his suburban evangelical church and joined a predominantly black congregation in a blue-collar neighborhood. He bought a half-hour of local TV for a morning prayer show featuring himself and his wife, and frequent guest spots by black ministers. He had a prayer group praying for him every day at the trial. All this was in Birmingham, Ala., where HealthSouth was located and where the trial occurred.

Cynics have suggested that Scrushy and his advisers might have been trying to influence the local jury with these tactics. This, if I might say so, is a typical example of the anti-Christian bias that so many folks complain about in the liberal media. Why can't a man turn to God in his moment of trial (or, indeed, in his actual criminal trial) without being accused of ulterior motives? Scrushy prayed, and his prayers were answered. "God is good," he said on the courthouse steps after the jury verdict. And well he might think so.

The Post got in trouble a million years ago for an article that described evangelical Christians as "poor, undereducated and easily led." The paper apologized almost immediately and many times afterward. And, like every major paper in those cesspools of secularism that are America's big cities, The Post now seizes any opportunity to slobber over religion and to show respect to religious people, especially evangelical Christians.

But with their cynical suggestion that Richard Scrushy and his defense team might have been using religion to con the jury, the liberal media reveal that they are still heathens. Not only do they still secretly think that devoutly religious people in the Deep South are "poor, undereducated and easily led," but they imply that Richard Scrushy and his defense team may think so, too. What could be a bigger insult to a godly man who has now been acquitted of all wrongdoing?

The obvious lesson of the Scrushy verdict is that prayer works. What do the cynics say now? Even Martha Stewart, who keeps thousands of people out of church every Sunday because they are too busy searching for fresh kale or folding their handkerchiefs and whose obsessive celebration of the material world makes her possibly the least spiritual figure in American public life (though no worse for that, in my opinion), might well wish she had fallen to her knees before it was too late.

To anybody but Scrushy, his acquittal doesn't necessarily prove that there is a God. To some HealthSouth investors, it may even suggest the opposite. And the view of those five former HealthSouth CFOs may be even bleaker. But if there is a God, it is hard to see the Scrushy acquittal as anything but the result of divine intervention.

So there is no puzzle about Scrushy's motives. The intriguing question is, what were God's motives? Being all-knowing, He or She doesn't need fingerprints and has no doubts, reasonable or otherwise. Are we supposed to conclude that prayer, if suitably ostentatious, can be an acceptable substitute for goodness, rather than a reflection of it?

Or is this a demonstration of God's powers? A good defense attorney can get an innocent man off, but it takes a great defense attorney to get a guilty man off. Maybe it's the same with deities.

All we can say is, God knows.

The writer is editorial and opinion editor of the Los Angeles Times.

© 2005 The Washington Post Company