Fired HealthSouth CEO Richard Scrushy made millions off a seven-year scheme to overstate earnings by about $2.7 billion as investors large...
BIRMINGHAM, Ala. — Fired HealthSouth CEO Richard Scrushy made millions off a seven-year scheme to overstate earnings by about $2.7 billion as investors large and small suffered, a prosecutor told jurors yesterday as testimony opened in Scrushy’s corporate-fraud trial.
A Scrushy lawyer countered that the fraud at HealthSouth was the work of a tightly knit group of executives — known to themselves as “the family” — who purposely kept Scrushy in the dark.
“This was no ordinary family. This was a family that operated as a unit on their own,” said defense attorney Jim Parkman.
U.S. Attorney Alice Martin said Scrushy sold about $150 million worth of his own HealthSouth stock as subordinates created false financial statements to make it seem that the rehabilitation giant was meeting analysts’ expectations, boosting company shares.
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The government also charged that Scrushy spent more than $200 million on such luxuries as waterfront mansions, opulent cars, a racing boat, bronze statues, a 21-carat diamond ring and a $3.2 million airplane.
All the while, Scrushy was getting private reports to show him the company’s true financial condition and not telling investors what was going on, Martin said.
“The evidence will show that Richard Scrushy as chief executive officer gave phony numbers to the public,” said Martin, calling Scrushy “a very hands-on leader” who picked his top aides and later tried to sway their statements to federal agents once an investigation began.
The defense conceded that a fraud occurred. But Parkman blamed it on a group of overly ambitious executives who hid the misstatements from Scrushy.
In a deep, folksy drawl that contrasted with Martin’s more businesslike approach, Parkman portrayed the Alabama-born Scrushy as an everyman CEO from humble beginnings who did his best yet failed to detect fraud that also eluded graduates of top Ivy League schools.
“How could it get by Richard Scrushy? You know how? This group controlled the numbers,” Parkman said.
But HealthSouth’s first chief financial officer, Aaron Beam, testified that Scrushy was familiar with the company’s finances and received weekly reports detailing everything from revenues to how many patients were treated at HealthSouth sites.
“Richard managed by the numbers, sort of a micromanager style,” said Beam, who helped Scrushy found the company in 1984 and retired in 1997. His testimony will resume today.
The jury of 11 blacks and seven whites — 12 jurors plus six unidentified alternates — was attentive, with a few taking notes.
Scrushy, 52, sat quietly at the defense table with wife Leslie seated behind him at the front of a courtroom crowded by more than 120 people. Dozens more watched from another room by closed-circuit TV.
Outside the courtroom after the first day’s testimony, Scrushy said, “We were waiting for this day. We’re ready to put it behind us.”
Scrushy is charged with fraud, conspiracy, obstruction of justice, perjury, money laundering and false corporate reporting in the first test of the 2002 Sarbanes-Oxley Act.
In an early attack on a likely key government witness, Parkman described former Chief Financial Officer Williams Owens as “the godfather” of the conspirators, casting doubt on the man who prosecutors say helped cement their case by secretly recording discussions with Scrushy.
The government’s case also was expected to include testimony by HealthSouth’s four other chief financial officers under Scrushy, with each claiming they talked with Scrushy about the scheme.
The five CFOs and 10 others agreed to plead guilty in the criminal-fraud case, which surfaced in March 2003 when the Securities and Exchange Commission filed a civil suit against HealthSouth and Scrushy.
Prosecutors are seeking $278 million in personal assets, as well as a prison sentence that could amount to life if convicted. But U.S. District Judge Karon Bowdre told the jury not to be swayed by testimony about Scrushy’s wealth.
“Mr. Scrushy is not on trial for making and spending money,” she said. “The real focus of your inquiry is whether Mr. Scrushy knowingly participated in the fraud at HealthSouth.”