Scrushy Denies Role In HealthSouth Fraud
The Associated Press
05/20/09 - 10:35 AM EDT
JAY REEVES
BIRMINGHAM, Ala. (AP) Testifying publicly for the first time about the financial debacle at HealthSouth Corp., fired CEO Richard Scrushy denied any involvement Wednesday with the huge accounting swindle that engulfed the rehabilitation company.
On the witness stand in a lawsuit filed by shareholders seeking $2.6 billion from Scrushy on behalf of HealthSouth, the longtime chief executive repeatedly portrayed himself as being unaware of an accounting fraud that evidence showed lasted for six years, starting in 1996.
Scrushy said he didn't know the company had cooked its books until 2003, when an FBI raid and government lawsuit revealed the scheme.
"I had no knowledge of any financial fraud at HealthSouth," said Scrushy, temporarily out of the federal prison where he is serving time for a separate corruption conviction.
Scrushy said he wasn't aware of some financial details at the company, including a $350 million budgeting error that his attorney depicted as a mistake, not fraud.
As Scrushy looked through old financial statements where he had circled numbers years before that didn't add up, defense lawyer Jim Parkman asked why he would raise such questions if he were in on the scam.
"That's a real good question," Scrushy answered.
Scrushy still looked like a high-powered executive in a dark business suit and tie. But his leg shackles jingled when he walked into court. He spent lunch in a holding cell rather than the fast-food restaurant where his legal team dined.
Scrushy was questioned first by Parkman, who represented him in the federal criminal trial that ended in his acquittal on criminal charges in 2005. Shareholder attorneys will cross-examine him as early as Thursday after Parkman finishes his questions.
Plaintiff's attorneys are making the same basic claim that prosecutors used unsuccessfully four years ago: That HealthSouth vastly inflated assets and revenues at Scrushy's direction when the company failed to meet Wall Street earnings estimates.
While jurors found him innocent in the criminal fraud case, Scrushy was convicted of bribery in 2006 and is serving nearly seven years in prison.
The shareholder suit was filed in state court, but Scrushy was questioned at the federal courthouse partly because of increased security. Circuit Judge Allwin E. Horn is hearing the case without a jury.
Scrushy portrayed himself as a victim of the fraud right up to an FBI raid in early 2003 on the company's headquarters in suburban Birmingham.
Recounting plans around that time to take HealthSouth private with a leveraged buyout, Scrushy testified that two former finance executives who pleaded guilty, Tadd McVay and Bill Owens, repeatedly assured him that HealthSouth had at least $300 million in cash for the deal.
"At no time ever did they pull me aside or anybody and say, 'We don't have that cash,'" said Scrushy, his voice rising.
Scrushy's testimony contradicted prosecution claims from his criminal trial, during which former executives who pleaded guilty said Scrushy knew about the scheme.
In the civil suit, plaintiff's witnesses have said HealthSouth killed a merger with nursing home operator Manorcare in 1999 because the fraud would have been revealed. But Scrushy testified that HealthSouth canceled the deal because it wasn't sure it wanted to be in the nursing home business and a board member objected.
Scrushy also said he was responsible for locking up the company's shredding machines to guard against the destruction of documents after an outside law firm was brought in to review HealthSouth's finances amid separate accusations of insider trading in 2002. He said he favored the establishment of a toll-free hotline for employees to report fraud.
Plaintiff's witnesses depicted Scrushy as a micromanager who was intimately involved in the company's finances, but Scrushy described himself as being more interested in issues like customer care and the company's image as he discussed a program to make sure its clinics were clean.
He was brought to Birmingham from a prison in Beaumont, Texas, where he is serving time for bribery. He was convicted on six counts accusing him of giving $500,000 in contributions in 1999 to then-Gov. Don Siegelman's campaign for a state lottery in exchange for an appointment to a hospital regulatory board.
Siegelman was also convicted on seven bribery and corruption charges. Two have been thrown out on appeal, and attorneys for both men plan to ask the U.S. Supreme Court to review their arguments to overturn the verdict.
While Siegelman has been released on appeal bond, Scrushy is still in federal custody, regarded as a flight risk. He has been held at a jail in nearby Shelby County awaiting his turn as a witness in the civil suit trial.
