Tuesday, January 25, 2005
Trial to start for ex-HealthSouth CEO
BIRMINGHAM, Ala. (Reuters) - The trial of former HealthSouth Corp. Chief Executive Richard Scrushy starts Tuesday, with the flamboyant Birmingham mogul accused of orchestrating a $2.64 billion accounting scandal at the healthcare company he founded.
Scrushy faces 58 criminal counts, including conspiracy to commit fraud, filing false financial statements, securities and wire fraud and money laundering at the rehabilitation and surgical clinics company.
He will be the first major U.S. executive to be tried for violating the Sarbanes-Oxley Act, which was passed in 2002 and imposes severe criminal penalties on top-level officials who certify false financial statements filed with the Securities and Exchange Commission.
If convicted of all charges, he faces up to 650 years in prison and more than $36 million in fines, plus forfeiture of any so-called ill-gotten gains, possibly including several homes, boats, planes and luxury automobiles.
The 52-year-old entrepreneur and local celebrity, who once hobnobbed with the rich and famous and had his name adorning public buildings all over Alabama, is accused of ordering the overstatement of HealthSouth earnings and assets for several years in order to prop up the company's share price.
The long-awaited trial will be the climax of a scandal that has been playing out in the Alabama courts and media for nearly two years with Scrushy at the center.
A former gas station attendant, Scrushy in 1984 co-founded HealthSouth. In what should have been a great American success story, the company became the nation's largest operator of rehabilitation hospitals. HealthSouth now has about 1,400 health clinics, down from about 2,000 at its height.
But the flamboyant Scrushy, who once had a local radio show, played in his own country band and promoted other musicians while running his Birmingham-based empire, saw his rags-to-riches story take a dramatic turn in March 2003, when federal agents raided the company's corporate headquarters.
Soon after, more than a dozen former HealthSouth executives agreed to plead guilty to fraud. Several of them said Scrushy knew about or oversaw the fraudulent accounting. Many of them, including former chief financial officers, are expected to testify for the government.
After the raid, the company said none of its past financial statements could be trusted. HealthSouth's stock plummeted, the company went into default on its loans, and it was delisted from the New York Stock Exchange.
It has since revamped its board and management team with the new management saying the actual fraud and inappropriate accounting could be in excess of $4 billion.
Scrushy has consistently maintained his innocence, claiming that the fraud was carried out by subordinates without his knowledge.
A key piece of evidence, which Scrushy's legal team has been trying to keep from being heard by the jury, will be secretly taped conversations between Scrushy and one of his former CFOs.
posted by Brian Moran @ 9:14 AM