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The Richard Scrushy Fraud Trial

Introductory page
This corporate web site addresses the issues of corporate health care within a broad framework. A web page describing this broad context should be considered as an introduction to each page on the web site. If you have not yet read it then
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Content of this page
This web page describes how the prosecution's apparently strong fraud prosecution against Richard Scrushy, HealthSouth's founder came undone. The strategies of the prosecution and the defence are examined. It gives a fascinating insight into the US legal system. trial by jury and the patterns of relationships in parts of the USA.



Update June 2009 Scrushy found guilty CLICK HERE


The HealthSouth scandal is unique in that the prosecution concentrated its efforts on criminal prosecution of the staff and the company itself was very secondary. In other health care frauds it has been the companies that have paid large settlements and the executives responsible have walked away with their profits. This change was probably due to the recently enacted Sarbanes-Oxley laws. These held executives personally responsible. The Scrushy trial was the first test of this new law and the prosecution seemed to have an open and closed case.

The prosecution were inept in electing to charge Scrushy in his home town of Birmingham and in their public grandstanding. They probably rubbed the judges up the wrong way and made a number of other errors. Scrushy was very resourceful and had the money to buy the best. He also knew his home town and the black population there well. He was able to align himself with them and get the support of the black clergy. He claimed that he had been set up and had not known what was happening.

There was no clear paper trail and the case depended on the testimony of multiple witnesses from HealthSouth who testified to Scrushy's involvement. The defence attacked their credibility and ultimately the jury refused to believe them and acquitted Scrushy of all charges. Many critics and analysts believe that there was a miscarriage of justice.

The interest in this case is what it tells us about Richard Scrushy and the legal system in the USA - a fascinating glimpse into middle America. It gives an indication of what happened or did not happen at HealthSouth.

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The way in which the HealthSouth scandal was exposed and the nature of the accounting fraud is addressed on the accounting fraud page. Estimated at close to US $4 billion prosecutors have concentrated on the fraud in the years since 1996. They have used a sum of US $2.7 billion in their actions. Scrushy and HealthSouth are involved in multiple other law suits. Scrushy was subsequently convicted of bribery and HealthSouth has settled whistle blower actions for Medicare fraud.

The fraud and its extent have never been denied. The issue has been culpability. Large numbers of senior executives pleaded guilty to the fraud and sought reduced sentences by cooperating with the prosecution. The majority of them named Scrushy as the driving force responsible for the fraud and indicated that he knew about it. He was portrayed as a micromanager who controlled every facet of the company's operations. It seems there was no paper trail.

Scrushy denied any knowledge of the fraud and claimed that he had been set up by those who had organised the fraud. Few believed him but when he came to trial the jury acquitted him of all charges. He was later charged with bribing the governor of Alabama and convicted.

Those who had pleaded guilty received lenient sentences from different judges on the basis that they they had played only a supporting role and had cooperated fully with the investigation. Two judges who sentenced them were very critical of the Scrushy jury's decision. Another judge involved was skeptical of the case against Scrushy from the outset and distrustful of the confessions.

"The man most singularly responsible for this criminal conduct has been found not guilty and will serve no time at all," said (judge) Clemon, referring to Scrushy.

"Where the head honcho is found not guilty," Clemon said, incarceration of a minor participant "might actually encourage disrespect of the law." Clemon did not preside over Scrushy's case.
Ex-HealthSouth exec resentenced to jail Reuters September 20, 2005

Judge Blackburn said Mr. Scrushy's lawyers had unfairly blamed Mr. Owens for the fraud.

"I do not believe you were the architect or the personal instigator of the fraud," she told Mr. Owens before she sentenced him. "That person escaped justice."
The judge who presided over Mr. Scrushy's trial, Karon O. Bowdre, sat through much of the hearing. Afterward, she declined to respond to Judge Blackburn's comment.
Executive Gets 5-Year Term in Fraud Case The New York Times December 10, 2005

But whether the SEC will succeed where criminal authorities stumbled is far from clear, experts said.

U.S. District Judge Inge P. Johnson last week ordered the agency to "show cause . . . why this case should not be dismissed."

Two years ago, the same judge rejected the agency's attempt to freeze hundreds of millions of dollars in Scrushy's cash and property after an unusual 11-day hearing in Birmingham. The SEC sought to protect the assets so eventually they could be distributed to investors who lost money after the fraud came to light.

"Evidence of defendant Scrushy's involvement in the alleged scheme to inflate profits . . . is lacking," the judge wrote in a May 2003 opinion.

She added that testimony from former HealthSouth finance chiefs who pleaded guilty to taking part in the scheme lacked credibility and called a secret recording of Scrushy talking about the company's financial problems "ambivalent at best."

Similar doubts also were cited by jurors who last week acquitted Scrushy on three dozen fraud, conspiracy and money-laundering charges - - - - - .
SEC to Try To Pursue Scrushy in Civil Court : Judge Asked Agency Why Case Should Not Be Dismissed The Washington Post July 5, 2005

It is now clear that the situation is understood differently by different people and the available information is interpreted in different ways. In the end no one has been held fully responsible for the fraud. We are left with the press reports and the various judges comments. We must draw what conclusions we can from the information we have and consider the possibilities. It does seem that the prosecution was outgunned both in court and out of it.

This web page examines the criminal trial of Richard Scrushy, HealthSouth's founder, chairman and CEO.

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 Richard Scrushy

Aaron Beam Jr., a former HealthSouth executive, recalled meeting Mr. Scrushy, then 26, while he was an executive at the Lifemark Corporation, then a Texas hospital chain. "I went home and told my wife that I just interviewed with the biggest con artist I ever met, or the most brilliant young man I ever met," he told The Birmingham News in 1996.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

The most fascinating figure in the HealthSouth saga is the self made, ambitious man at the centre of it. HealthSouth was his company. He made it and he considered it to be his creation. Everything revolved around him. His trial and the way it was conducted tell us a great deal about him and add to the confusion and the contradictions.

Was Scrushy the innocent and gullible man framed by a skilled group of conspirators who carefully set him up and rehearsed their accounts of him so that there were few contradictions. Were the prosecution so focused on securing a conviction that they ignored due process, suppressed evidence and drilled witnesses until there were no contradictions.

There seem to be three possibilities.

An innocent man:- The defence asserted that Scrushy had been framed by his staff. This is also what much of the religious black community in Birmingham believed. The evidence of several of the defence's own witnesses does not really support their case. The accounts of those who claim they spoke to and challenged Scrushy rings true.

An arch villain:- Was Scrushy the arch scheming villain, a malign intelligence who set up a gigantic fraud, at the same time ensuring that there were no links to implicate him directly. A defining feature of this case is the absence of a clear paper trail. Did he then skillfully and deceitfully manipulate the community in his home town to the extent that a local jury believed and acquitted him in spite of the facts and the evidence of multiple witnesses. This is what the prosecution asserted, what is reflected in the press reports and what the wider community saw. A separate jury trial in another city later convicted Scrushy of bribery on the basis of evidence given by the same witnesses.

A personality disorder:- Alternately do we have an extreme example of the sort of disturbing sociopathic personality that I have suggested flourishes in the corporate marketplace (see my web page on sociopathy). I have written about some of the mechanisms in "Belief vs Reality" (download pdf file)

Is this a man supremely confident, extremely intelligent, driven by extreme ambition, and ultimately living only in the external world of his fame and successful image. Does reality for him become what he decides it is? Can he be so confident that he can convince others? Is all else disregarded, compartmentalised and rationalised - expunged from some levels of consciousness. Can all of his actions be seen as a process of maintaining that illusion and all of his intelligence be focused on that. These people typically surround themselves with yes men and build a protective aura around themselves so that no one dare challenge them. They denigrate others so that they can ignore them.

- - - - - - - but to confront Mr. Scrushy directly was a risk," Livesay (executive) said, indicating Scrushy did not welcome bad news and such messengers tended to find their employment future unstable.
"I was there for 14 years. I observed, worked for and admired Mr. Scrushy. He was an incredibly talented and gifted man, a very intelligent man. It was like he could achieve anything he set his mind to," Livesay said, adding, "It is inconceivable to me that something this massive was going on without his knowledge."
Scrushy trial: Witness still admires the accused chief executive The Birmingham Business Journal February 28, 2005

Under prosecution questioning, Livesay described Scrushy as an intimidating leader no one would cross. Scrushy worked hard, was "incredibly talented and gifted" and could "achieve anything he set his mind to," Livesay said.
Witness calls Scrushy 'commander in chief' Miami Herald (Associated Press) Feb. 28, 2005

Describing an atmosphere of intimidation at HealthSouth, Smith said Scrushy would "humiliate'' subordinates who challenged him during meetings.

"He was referred to as the king. He made every decision,'' said Smith.
"He did not tolerate people who were not `yes' men. If you were not in the room you were a target, because he loved to talk about people behind their back,'' said Smith.
Fifth Former CFO Testifies Against Scrushy The New York Times March 22, 2005

Could the absence of a paper trail, the way Scrushy gave his instructions to staff to fix the problem, and the use of euphemisms when talking about it, as well as the elaborate security measures and intimidation of staff, all be a part of a process of shielding himself from what he was doing.

What about his religious conversion and his charisma when dealing with the community during his trial. Could this be genuine? Could he be so convincing if he did not believe in and identify with what he was saying - at least temporarily. I have seen others with this sort of personality use religion in this way.

According to a statement from Russell, "Richard was raised in a churchgoing family and was saved at age 11. He felt called to the ministry at age 15 but put that call aside when he moved into teaching and then business. He has regularly attended church throughout his adult life and is married to the daughter of a minister."
Former HealthSouth CEO Scrushy turns televangelist USA TODAY October 24, 2004

Could all of the participants in this saga really be sincere within their own lights? Can we explain this on the basis of aberrant social process and personality pathology alone? Probably not fully.

If the evidence given by HealthSouth staff is real then the Scrushy story in some ways challenges the credibility of my thesis and in other ways supports it. Can there really be such an extreme example with so little insight? Perhaps there is an interplay of factors, part of our complexity - the playing of multiple separate roles, each kept away from the others - a sort of Jekyll and Hyde phenomenon where different understandings throw light on different roles each kept separate from the other. In some he was scheming and in others sincere - which ties in with what I was saying in "Belief vs Reality" above.

The different attitudes of the judges illustrates the different ways in which Scrushy's behaviour was understood - and the very real consequences for the parties involved.

The important issues related to who was to be believed. It would be the largely black jury in Birmingham, Alabama who would decide that. Scrushy's lawyer said as much.

"I expect the case to boil down to the credibility of the C.F.O.'s versus Scrushy's credibility," said Donald K. Watkins, Mr. Scrushy's lead lawyer. "By their own admission, we know that the C.F.O.'s have engaged in a pattern and practice of deception, where they had a duty to tell the truth."
Former HealthSouth Chief Indicted by U.S. The New York Times November 5, 2003

In looking at what happened and in selecting illustrative extracts I will have these issues in mind. This is a small selection from a vast amount of material.

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Fraudulent from the very beginning?

The company's own audit found that the fraud was closer to US $4 billion. Many accounts indicate that it went back into the 1980s - perhaps even before HealthSouth. There was initially a propensity to aggressively stretch the limits, isolate themselves from critics and associate with supporters. This is revealed in the Amcare saga below.

Another of the witnesses describes the way in which aggressive accounting progressed to fraud. It was incremental - a small step at a time - plenty of opportunity for rationalisation and compartmentalisation as people learned to live with what they were doing.

Amcare Inc., the company that became HealthSouth in 1984, couldn't convince auditors KPMG that its books were reliable, prosecutors said in a court notice that outlines additional evidence they plan to present to jurors at the former chief executive's accounting fraud trial. Scrushy's response: He fired them, the government said.
Prosecutors add new Scrushy allegations The Business News July 01, 2004

Scrushy is accused of directing a $2.7 billion earnings overstatement, and jurors repeatedly have heard testimony that the fraud began in 1996. But the transcripts reveal that prosecutors have evidence that the scheme really began nearly a decade earlier.

During a private session to preview the testimony of former HealthSouth chief financial officer Weston Smith, Bowdre asked him about the start of the accounting scheme, which Scrushy blames on underlings.

"When ... was the first conversation you had with Mr. Scrushy about this fraud?" Bowdre asked.

"The very first conversation was in, I believe it was early 1988, probably February, February or March of 1988," said the former finance chief, among 15 one-time HealthSouth executives who pleaded guilty and agreed to help prosecutors.
"We chose to cut it off at '96 because at some point in time we don't want to go back I mean, there is one thing if we go back to '84 from out of the balancing charge, we specifically choose that time period because we had the most records available," he (Richard Smith prosecutor) said.
Transcripts Show Allegations of Fraud at HealthSouth May Be Traced Back to Late 1980s ABC News (Associated Press} Apr. 24, 2005

 Although the government originally hinted at signs of fraud dating back to 1984 -- the very year HealthSouth went public -- it has narrowed its focus down to a recent seven-year window in its complaint against the company's founder.
Scrushy's Prognosis Looking Worse Than HealthSouth's The (Melissa Davis) November 10, 2003

He (Aaron Beam) described a directors meeting in about 1985 where board members told Scrushy they were turning down his request for a large raise. Beam said Scrushy immediately "walked out" of the meeting but returned a few minutes later.

"He said, `If you guys want to run the company you can, otherwise you are going to pay me what I deserve,'" Beam said. U.S. District Judge Karon Bowdre instructed jurors to disregard testimony about the meeting after defense attorneys objected that it occurred before the alleged fraud.
The government also charged that Scrushy spent more than $200 million on such luxuries as waterfront mansions, opulent cars, a racing boat named "Monopoly", bronze statues, a 21-carat diamond ring and a $3.2 million airplane.
HealthSouth Co-Founder Discusses Ex-CEO : HealthSouth Co-Founder Portrays Former CEO As 'Micromanager' When It Came to Company Finances ABC News January 26, 2005

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Getting to trial

The process of getting to trial took a long time and there were many preliminary skirmishes. The prosecution were aggressive in their public announcements and their tendency to grandstand in the public arena. This trial by public opinion backfired very badly as they were dealing with a skilled adversary who would play that game far more successfully. They were certainly inept in their initial efforts then made the critical blunder of deciding to prosecute in Birmingham, Scrushy's home town. He was very popular here and knew the population and which social buttons to press. The prosecution controlled public opinion across the country but Scrushy controlled it where it mattered.

The first debacle was when the Securities and Exchange Commission attempted to freeze Scrushy's assets. They were unable to make a sufficiently convincing case. The judge felt that Scrushy's rights were threatened and rejected this. Scrushy taunted them by spending lavishly. He proclaimed his innocence forcefully and continued to lead the extravagant life he felt was his right.

The Securities and Exchange Commission has named him in a lawsuit as the mastermind of massive accounting fraud at the company.
Donald Watkins, a Birmingham lawyer representing Scrushy, said Thursday his client has not done anything wrong and shouldn't have to change his lifestyle.
Scrushy's spending comes after the SEC failed to persuade U.S. District Judge Inge Johnson in Birmingham to freeze Scrushy's assets, estimated at $150 million.
"This is the government's worst nightmare in the sense it looks like he intends to dissipate the fortune he has accumulated over the years by pursuing an extravagant lifestyle," said Chris Bebel, now a partner with Houston's Shepherd Smith & Bebel law firm. "Even if his fortune is of an enormous nature, it won't stand up to this type of spending pressure much longer, especia
lly when his legal fees are factored into the equation."
Scrushy continues to live the high life Birmingham News August 22, 2003

Most of the people at the center of corporate scandals have played a cat-and-mouse game with investigators, laying low and trying to keep their assets out of the limelight. But not Richard M. Scrushy, a founder and the former chief executive of HealthSouth, the nation's largest chain of rehabilitation hospitals and surgery centers.
Still, Mr. Scrushy is living the outsized life he favored before HealthSouth's fortunes plunged, and his legal team is taking a combative tack.
Meanwhile in Alabama, where Mr. Scrushy lives and HealthSouth has its headquarters, Mr. Scrushy is maintaining a high profile.
Some of Mr. Scrushy's legal foes say that he is being deliberately provocative. He and Mr. Watkins are "thumbing their noses at people pursuing him and his money," said Doug Jones, a former United States attorney in Birmingham who is representing shareholders suing to recover their losses on HealthSouth stock.
The government is trying to reclaim assets it believes were obtained by executives as a result of fraud, Ms. Martin explained.
Mr. Scrushy, who was once among the nation's highest paid chief executives, owns four elaborate residences as well as other real estate, more than 40 cars, several planes and powerboats, securities and other property. He also has a custom-built 92-foot yacht, the Chez Soiree, berthed near his mansion in Palm Beach, Fla.

The total value is "substantially more" than an earlier government estimate of $150 million, officials said.
Preparing to seek forfeiture in connection with a criminal case can be complicated, officials said.
HealthSouth Scandal Doesn't Slow Former Chief The New York Times September 26, 2003

In May, a federal judge in Birmingham denied an SEC motion to indefinitely freeze Scrushy's assets, saying the government had failed to establish he was involved in the fraud.
Former HealthSouth CEO indicted : Feds want Scrushy to forfeit $278 million in assets CBS Marketwatch November 4, 2003

The battle escalated when the charges were laid and Scrushy was paraded in leg irons. The judge took a more benign view and released him on US $10 million bail and many restraints. There were to be delays before the case came to court.

This was the first test of the Sarbanes Oxley act holding CEO's accountable for the documents they signed. It seemed an ideal case.

Press release by dept justice
The indictment alleges that between 1996 and 2003, internal reports by HealthSouth's corporate accounting staff showed that the company routinely failed to produce sufficient net income to meet the expectations of Wall Street securities analysts, the market and its own internal budgets - a failure that Scrushy and others allegedly referred to as "not making the numbers." According to the indictment, Scrushy and others devised a scheme to inflate HealthSouth's earnings by making false and fraudulent entries in HealthSouth's books and records, and to cover up the accounting fraud with false financial filings and statements. The indictment alleges that the scheme added approximately $2.7 billion in fictitious income to HealthSouth's books and records during the course of the conspiracy. The indictment further alleges that Scrushy paid himself and others in the form of salaries, bonuses and stock options as a result of the fraudulently inflated results.

According to the indictment, Scrushy and his accomplices would meet to discuss HealthSouth's actual financial performance and the need to falsify those internal results before they were publicly reported. The indictment states that Scrushy, through his accomplices, caused members of the corporate accounting staff to falsify the company's books and records. The fraud allegedly included false entries in income statement and balance sheet accounts, including property, plant and equipment accounts, cash accounts and accounts receivable, among others. According to the indictment, the co-conspirators referred to those methods as "filling the hole" or "filling the gap."

As part of the conspiracy, Scrushy and other co-conspirators allegedly signed and filed false statements with the Securities and Exchange Commission, and sought to conceal the fraud by controlling the internal distribution of actual financial results and providing false information to federal and state tax authorities. The indictment also alleges that Scrushy sought to control his co-conspirators, HealthSouth employees and the company's Board of Directors by, among other things, threats, intimidation, electronic and telephonic surveillance, and reading their e-mails. To further control others at HealthSouth, Scrushy allegedly obtained large compensation packages for co-conspirators and offered them other incentives to keep them from discussing the fraudulent scheme, including, at one point in early 2003, an offer to take care of a co-conspirator's family if the co-conspirator would take the blame for HealthSouth's financial overstatements.

The indictment alleges that Scrushy knowingly signed false statements to the SEC, including a false 10-Q form for the third quarter of 2002, in violation of the recently enacted Sarbanes/Oxley law. Scrushy also allegedly continued the scheme through false representations to HealthSouth's stockholders and the rest of the investing public through press releases that misstated HealthSouth's financial condition. In June 2000, for example, Scrushy appeared in a HealthSouth State of the Company videotape, stating that "we have remained committed to prudent fiscal policy and the integrity of our balance sheet," and boasting that HealthSouth had an outstanding balance sheet. In early 2003, Scrushy boasted at a company managers meeting that HealthSouth did not have the same type of problems as WorldCom and Tyco.

The money laundering counts of the indictment allege that Scrushy knowingly engaged in financial transactions using criminally derived property, including the purchase of land, aircraft, boats, cars, artwork and jewelry, among other items. The indictment seeks forfeiture of all such gains derived from criminal activity, totaling $278,727,674.35, including: several residences in the state of Alabama and property in Palm Beach, Florida; a 92-foot Tarrab yacht called Chez Soiree, a 38-foot Intrepid Walkaround watercraft and a 42-foot Lightning boat; a 1998 Cessna Caravan 675, together with amphibious floats and other equipment, and a 2001 Cessna Citation 525 aircraft; diamond jewelry; several luxury automobiles, including a 2003 Lamborghini Murcielago, a 2000 Rolls Royce Corniche, and two 2002 Cadillac Escalades; and paintings by Pablo Picasso, Marc Chagall, Pierre-August Renoir, among others.

If convicted of all the charges, Scrushy faces a possible maximum sentence of 650 years in prison and more than $36 million in fines, in addition to the forfeiture.
Members of the public are reminded that an indictment contains only charges. A defendant is presumed innocent of the charges and it will be the government's burden to prove a defendant's guilt beyond a reasonable doubt at trial.

- - - - - former chief executive, Richard Scrushy, was hit with 85 criminal charges and put on a fast track toward a trial at the start of the new year.

With a subdued Scrushy in leg irons, Judge T. Michael Putnam made sure Scrushy understood the charges against him before setting a trial date for Jan. 5, a mere nine weeks away.
Now the man who enjoyed a rock star-like celebrity in his home base of Alabama and owned a fleet of planes, a yacht, racing boats and luxury cars, will be severely restricted in his movements as he awaits his day in court.

Before being released on $10 million bail, Scrushy had to agree to a host of humiliating conditions.

He will trade his leg shackles for an electronic monitoring bracelet that he must wear on his ankle at all times. He also must check in with authorities by telephone every day.

Thomas Sjoblom, another of Scrushy's attorneys, argued that his client was no flight risk, "in spite of the fact that he is a pilot and has his own plane."

But the former high flyer will not be allowed to leave the northern or central districts of Alabama, and to help ensure those conditions he agreed to surrender the keys to his aircraft, his pilot's license and his passport.
His lawyers said under no circumstances will Scrushy plead guilty and that he will take the stand in his own defense.

"At the end," predicted Watkins (lawyer and friend), "he'll be a free man."
Scrushy on Fast Track to Criminal Trial Reuters Nov 5, 2003

Experts on white-collar crime said the case gave federal prosecutors their best chance yet in the corporate scandals to secure the conviction of a former chief executive. Fourteen former HealthSouth executives and accounting managers who have already pleaded guilty to various fraud charges -- including all five of the company's former chief financial officers -- are expected to testify against Mr. Scrushy. So are numerous employees not implicated in the government's investigation.

"The government will use those witnesses to testify that Mr. Scrushy was a hands-on C.E.O., that he knew everything that was going on in every corner of the company, and that it was inconceivable that he was unaware of the gross inflation of corporate assets and income," said Eric Havien, a former federal prosecutor who is now with Phillips & Cohen, a San Francisco law firm. "They won't need to rely on criminally culpable people to put on that sort of testimony."
Former HealthSouth Chief Indicted by U.S. The New York Times November 5, 2003

Scrushy's assets had been frozen in this and other actions against him. His lawyers fought hard to unfreeze them and to get him more freedom. They complained about the way the prosecution used the media to drive the case.

Also Wednesday, Scrushy's attorneys filed a motion seeking to unfreeze $79 million of his assets, $49 million of which they claim Scrushy earned apart from his HealthSouth income and investments.

"They have grabbed more assets to hold prior to trial than the law allows them to," attorney Abbe Lowell said in a conference call with reporters.
Lowell also complained about prosecutors' public release of an affidavit regarding Scrushy and his family's finances, saying they had sought the document "for weeks" but didn't receive it before it was made public.
Former HealthSouth chief ordered to repay $25 million loan San Francisco Chronicle November 26, 2003

Fired HealthSouth CEO Richard Scrushy wants a court to ease restrictions of his $10 million bond as he awaits trial on fraud charges, arguing that Martha Stewart and a host of other former executives accused of crimes have gotten better treatment.
Scrushy Seeks Easing of Bond Restrictions The New York Times December 17, 2003

HealthSouth Corp. founder and former CEO Richard Scrushy will be able to travel to Atlanta, New York and Washington to consult with his attorneys now that a federal judge relaxed his strict travel restrictions implemented last month.
Judge eases Scrushy's travel restrictions Modern Healthcare's Daily Dose Dec. 30, 2003

A judge in sentencing those who pleaded guilty rejected the claim to a $2.7 billion fraud and substituted US $66 million instead. This put the whole prosecution case in question. It went to appeal and US $2.7 billion was reinstated.

A federal judge has rejected a key government claim in the fraud case engulfing HealthSouth Corp., ruling that an accounting scam cost shareholders $66 million - a fraction of the $2.8 billion prosecutors had suggested. Judge:
HealthSouth fraud cost investors $66 million THE ASSOCIATED PRESS November 22, 2003

HealthSouth staff who were to give evidence were barred from reading pretrial publicity and this interfered with their work. HealthSouth appealed.

U.S. District Judge Karon Bowdre ruled Dec. 16 that potential witnesses in the nearly $3 billion accounting fraud trial of former HealthSouth CEO Richard Scrushy are not allowed to follow media coverage of the trial.

In a motion filed Jan. 14, HealthSouth attorneys requested five individuals be released from the decree because ignorance of the material prevents them from adequately performing their jobs.
HealthSouth asks judge to lift limits on 5 employees Birmingham Business Journal January 17, 2005

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Defence strategies

The defences strategies can be divided into several streams.

  1. There may have been some initial attempts to hide information. Scrushy proclaimed his innocence publicly while declining to give evidence under oath.
  2. There was an aggressive attempt to challenge the charges and to show that the legal processes had been faulty and the prosecution biased. This became a trial by media.
  3. There was no paper trail and the case depended on witnesses most of whom were felons and part of the fraud. The defence concentrated its efforts on discrediting the witnesses in the eyes of the jury and in boosting the image of Scrushy as a god fearing Christian of integrity - someone strongly supported by their churches.
  4. In spite of his wealth Scrushy aligned himself with the struggling poor and particularly with the fundamentalist black churches that served much of Birmingham's majority religious black community. The jury was selected from this community. He joined these churches and funded them. He became a popular lay preacher at these churches and operated a number of religious television programs in the region. He paid for positive press reports in the black press.

The support from the black churches was glaringly apparent to the jury. The black clergy were prominent among his supporters attending the trial. This was a risky strategy. Had the jury felt that he was manipulating them, then it might have back fired. It seems to have succeeded spectacularly.

The interest to me is how this successful white businessman could have worked so closely with these black ministers and the jury and have so effectively convinced them unless he was sincere. Charisma involves some conviction and that means taking on and accepting the role that is being portrayed without any doubt - if only temporarily. This does not mean that there is no self interest involved or driving the process. It is self interest and success which drives the sort of people that I have described. What is different is that they are able to conceptualise to themselves. in ways that are unattached to the real situation, and then convincingly present that conception to others. Because they believe it they do so with such conviction that others are convinced and carried along.

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The Early Stages

During the early stages of the investigation Scrushy was accused of trying to manage the report of the consultants HealthSouth had appointed to investigate its own practices - an investigation that it was claimed showed no wrongdoing by Scrushy. This is reminiscent of Tenet's strategy in the 1991 fraud. There were the usual stories of shredded documents.

HealthSouth Corp. Chairman Richard Scrushy tried to manage the public perception of an outside law firm's investigation of insider-trading allegations at the medical services giant, documents released by a (congressional) House committee showed.

House investigators claimed the internal HealthSouth memos released Tuesday showed Scrushy and aides may have compromised the probe's findings, but it was not immediately clear from the documents whether that was so.

The probe by attorneys at Fulbright & Jaworski found no evidence of wrongdoing by Scrushy, who was ousted in the company's $2.5 billion accounting scandal.
E-mail memos released by the panel Tuesday "clearly call into question the fairness and the independence of the Fulbright & Jaworski investigation," committee spokesman Ken Johnson said. He said the documents show that Scrushy and his colleagues were desperate last fall to influence the findings of the inquiry commissioned by the company's board, and that Scrushy and HealthSouth outside attorney Lanny Davis "had every expectation of steering the direction of the investigation."
In an Oct. 20 e-mail, Scrushy told Davis in regard to the law firm's report: "I do not believe we should give the full report to the press. We should force an executive summary or a press release to give to press (sic) and to post on the web site. ... I think we should not trust the press and we should give them small sound bites and the first round should not have all information, i.e. total info on what, when, who."

As the law firm finished its probe, Davis wrote to Scrushy on Nov. 4, 2002: "We must cut off (Fulbright & Jaworski) this morning -- not this afternoon, but immediately -- before more harm is done ... ."
The Fulbright & Jaworski's six-week review found that Scrushy did not know about the rule changes or their impact when he sold his company stock earlier in the year, prior to a HealthSouth announcement that sent share prices plummeting.
Law firm's investigation of HealthSouth compromised by company's chairman, House aides say San Francisco Chronicle (AP) , October 15, 2003

Fulbright & Jaworski LLP, in an Oct. 29, 2002, report to the Alabama-based clinic operator's board, said its lawyers found shredded documents in offices containing the files of four former HealthSouth executives.

"There was no indication of when the documents had been shredded," said the report - - - - -.
The law firm's report said that some of the shredded documents found on Sept. 26, 2002, appeared to be e-mails.
A committee spokesman has said it has "serious concerns" about the Fulbright & Jaworski report.
HealthSouth Law Firm Says It Found Shredded Documents Reuters Oct 14, 2003

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Legal Strategies

Scrushy invoked his 5th amendment rights refusing to answer questions at the congressional inquiry into HealthSouth. This was in spite of his going very public in a no questions barred interview with Mike Wallace on CBS Television program "60 minutes" shortly before. He proclaimed his innocence on this program. He later sought to subpoena the CBS staff as a witness at his trial.

"Scrushy spoke to Wallace without lawyers in a no-holds-barred interview at his home in Birmingham," the announcement from the network says.
Wallace, in addition to Scrushy, interviewed former U.S. Attorney Doug Jones, who is now a lawyer in private practice representing HealthSouth shareholders who claim to have lost money as a result of the fraud.
Scrushy interview on CBS Sunday Birmingham News October 9, 2003

In his first public interview since the government accused HealthSouth Corp. in March of $2.5 billion in securities fraud, former company CEO Richard Scrushy said Sunday on CBS' "60 Minutes" program that previous HealthSouth CFOs orchestrated and committed the fraud without his knowledge. Scrushy, who appeared on television without his attorney present, said he signed off on financial documents that inflated company profits but was completely unaware of his employees' scam. "You have to rely, you have to trust people," Scrushy told Mike Wallace, according to program transcripts. "You have to believe. You have to delegate. I mean, you hire them. You pay them good salaries. You expect them to do the right thing. And I signed off on the information based on what was provided to me. And what I was told."
"There was no motive for me to destroy a great company that I built, a company that I loved," he said.
Scrushy speaks out Modern Healthcare's Daily Dose Oct. 13, 2003

On his personal Web site, he posted a defiant statement proclaiming, "I now embrace the opportunity to clear my name."
Former HealthSouth Chief Indicted by U.S. The New York Times November 5, 2003

Richard Scrushy, the founder and former chief executive of scandal-rocked HealthSouth Corp., has subpoenaed CBS News journalist Mike Wallace as a witness at his criminal trial later this month.

Wallace and CBS News producer Robert Anderson, who was also subpoenaed, have in turn filed a motion with Judge Karon Bowdre of the U.S. District Court for the Northern District of Alabama to have the subpoenas thrown out, according to court documents filed on Monday.
HealthSouth Ex-CEO Subpoenas Mike Wallace (Reuters) January 4, 2005

Scrushy employed a large number of skilled lawyers and they used every strategy they could to dent the government case before trial. Scrushy's first lawyer was a friend and a prominent black bank owner in Birmingham. Scrushy's master stroke was to finally replace outside lawyers at the trial with a homespun black lawyer who spoke the language of the Birmingham jury and related well with them. He left the complex and difficult to understand legal, accounting and business arguments to the prosecution. He concentrated on influencing the jury's perception of the witnesses as he set out to discredit them.

Scrushy said Thomas Sjoblom of Chadbourne & Park, Washington, who has represented Scrushy since April, and Sjoblom's partner Abbe David Lowell would defend him in the upcoming trial. Donald Watkins of Birmingham, Scrushy's longtime friend and counsel, will continue to be a principal counselor and adviser to Scrushy and the legal team.

Sjoblom has been a Securities and Exchange Commission trial attorney and a federal criminal prosecutor and now heads the securities litigation and regulatory enforcement practice at Chadbourne.

Lowell, who heads the firm's white collar defense practice, was named one of the nation's 10 best trial lawyers by the National Law Journal and served as the chief attorney for the House Democrats during impeachment proceedings against former President Clinton.

Also joining Scrushy's defense team is Arthur Leach, a private consultant who was chief of asset forfeiture for the U.S. attorney's office in Georgia from 1989 to 2002.
Scrushy's trial delayed; defense team announced Modern Healthcare's Daily Dose Nov. 17, 2003

 Mr. Russell, the spokesman for Mr. Scrushy, said he had chosen Mr. Watkins because he was a friend and entrepreneur with a "unique grasp of legal and business issues."
Will the Real Richard Scrushy Please Step Forward New York Times February 17, 2005

Former HealthSouth CEO Richard Scrushy is restructuring his legal team to bring in a little-known Alabama lawyer to take over the lead counsel's role from a well-known Washington attorney.

Scrushy has designated Jim Parkman of Dothan as the lead attorney for his upcoming trial on charges of conspiracy, fraud and money laundering. He takes over from Abbe Lowell, who remains on Scrushy's legal team, a legal adviser to Scrushy said.
Another attorney in Parkman's firm, Martin Adams, is also joining Scrushy's team, according to court papers filed by the defense. Adams is married to Scrushy's daughter Amy. Watkins said Adams' role on the legal team will not be high profile.
Former HealthSouth CEO Reconfigures Team LA Times (Associated Press) September 16, 2004

Attorneys Abbe Lowell, Thomas Sjoblom and Scott S. Balber with the firm Chadbourne & Parke withdrew with Scrushy's permission, according to a court filing Wednesday.

Andrew Blum, a spokesman for the firm, said Scrushy and the firm made a mutual decision that the lawyers might work on civil cases while Scrushy brought in an Alabama lawyer to work on the criminal case.
HEALTHSOUTH CORP.: Scrushy gets OK to change legal team Chicago Tribune (Associated Press) November 27, 2004

 Scrushy's legal team, headed by Watkins, has filed a blizzard of legal motions and challenges aimed at undercutting the government's case. Scrushy's lawyers have argued against the legality of the Sarbanes-Oxley Act, under which Scrushy has been charged, and questioned Martin's handling of the grand jury investigation into wrongdoing at HealthSouth. But one fact remains irrefutable: Martin has secured 17 cooperation agreements from former HealthSouth employees, including plea agreements from all five men who served as chief financial officer under Scrushy. It is expected they will testify that Scrushy orchestrated the fraud at HealthSouth.
Former HealthSouth CEO Scrushy turns televangelist USA TODAY October 24, 2004

Also in November, Scrushy replaced his high-profile Washington-based legal team headed by Abbe Lowell and Thomas Sjoblom in favor of home-grown representation that might play better in front of an Alabama jury
Trial of HealthSouth Ex-CEO Scrushy Set to Begin Reuters January 3, 2005

After the trial's first week, the move appears to be nothing short of brilliant. Jim Parkman, who glories in his role as a simple country lawyer, is clearly the star of the show.

During opening statements Tuesday, Parkman's hyperbolic rhetoric and scenery-chewing antics captivated the jury of nine men and nine women (six are alternates).
On paper, Martin's case against Scrushy seems overwhelming. But in the courtroom, where the only thing that matters is the opinion of the jury, Parkman is a master of the "game-within-the-game."

Through an anomaly of design in the ultramodern Hugo Black Federal Courthouse here, the witness stand is located across the courtroom from the jury box.

As a result, when questioning witnesses from the lectern in the middle of the courtroom, prosecutors have had their backs to the jury.

Unlike the prosecutors, Parkman stayed focused on his audience. During the most intense portions of his cross-examination of Beam, he didn't even look at the witness, directing his questions - and his insinuations about Beam's private life - directly at the jury box.
Where Parkman excels in making an emotional connection with jurors, Leach's job is to act as the team's pit bull.
Scrushy's surprise switch to different lawyer appears smart USA Today January 31, 2005

A primary target of the defence was the charges under the Sarbanes-Oxley act which had never before been tested in court. The defence also tried to have all the charges thrown out claiming a breach of process.

The Scrushy defense team informed U.S. District Judge T. Michael Putnam that it would seek to overturn the Sarbanes-Oxley Act, which Congress passed last year in response to accounting scandals at Enron, WorldCom and other corporate giants.
Fired CEO Scrushy seeking to overturn new corruption law THE ASSOCIATED PRESS December 1, 2003

A judge has recommended against dismissing the 85-count fraud indictment against former HealthSouth Chief Executive Richard Scrushy, rejecting defense claims that prosecutors failed to screen grand jurors for bias.

U.S. Magistrate Judge T. Michael Putnam ruled Tuesday that prosecutors and a judge took adequate steps to ensure that no one with ties to the company or potential witnesses served on the panel.
Ex-CEO of HealthSouth loses bid in fraud case Chicago Tribune (Associated Press) April 14, 2004

The defense team for Richard Scrushy made its case for dismissing three key charges against the former HealthSouth Corp. chief executive officer, who stands accused of directing a $2.7 billion accounting fraud scheme at the company. The three charges stem from the Sarbanes-Oxley Act, created in 2002 in the wake of Enron Corp. and other corporate scandals to hold CEOs personally liable for false financial reporting. Scrushy is the first to be charged with violating the law. - - - - - - - Scrushy attorney Thomas Sjoblom called the law "unconstitutional on its face," the Associated Press reported.
Scrushy defense challenges law aimed at CEOs Modern Healthcare June 17, 2004

 HealthSouth Corp. founder and former Chief Executive Officer Richard Scrushy will be the first person tried under the Sarbanes-Oxley Act for his actions as CEO when his criminal trial begins next year. A U.S. District Court judge in Birmingham, Ala., refused to dismiss three charges based on the Sarbanes-Oxley Act in the federal government's 58-count indictment accusing Scrushy of directing multibillion-dollar accounting fraud at HealthSouth.
Ruling sticks Scrushy with Sarbanes-Oxley charges Modern Healthcare November 30, 2004

Scrushy's defense team challenged the use of Sarbanes-Oxley, arguing it is too vague and broad in scope.

Judge Karon Bowdre dismissed the challenge in late November, asking the rhetorical question: "Hasn't certifying a document that is materially false been illegal all along?"
Trial of HealthSouth Ex-CEO Scrushy Set to Begin Reuters January 3, 2005

The lawyers tried hard to limit the evidence to be presented both before the trial and with objections during the trial. They challenged the admissibility of the secretly recorded tapes while at the same time claiming they exonerated Scrushy. They challenged the process leading to the charges and tried to discredit it.

The defense team for HealthSouth Corp. founder Richard Scrushy asked the U.S. District Court in Birmingham, Ala., to suppress taped conversations between Scrushy and former HealthSouth Chief Financial Officer William Owens. Owens - - - - In court documents filed Monday, Scrushy's attorneys called the taping a violation of "well-established ethical principles." They also asked the court to determine if a grand jury was biased in indicting Scrushy on 85 criminal counts in November 2003. Scrushy's trial is slated to begin in mid-August. He has denied wrongdoing.
Scrushy team wants taped conversations tossed Modern Healthcare's Daily Dose Jan. 27, 2004

"The tape recordings ... conclusively demonstrate that Scrushy's criminal activity was ongoing," prosecutors said in a court filing reported by The Birmingham News on Saturday.
Secret Tapes at Issue in HealthSouth Case ABC News (Associated Press) February 15, 2004

Attorneys for Scrushy said prosecutors and investigators withheld evidence showing Scrushy's innocence during a hearing last year, including comments he made during a conversation secretly recorded by a former HealthSouth financial chief.

"The government attorneys knew about this kind of evidence and sat on it," said Donald Watkins, a lawyer for Scrushy.
The defense sought an investigation by the Justice Department's Office of Professional Responsibility. It sent a copy of the complaint to three federal judges in Birmingham.
"It's part of the defense checklist. They're challenging everything they can," Martin said after a hearing where prosecutors and the defense haggled over evidence.
Prosecutors withheld evidence, says fired CEO of HealthSouth The Seattle Times March 2004

Mr. Scrushy's attorneys are expected to contend that certain audio recordings should be excluded from his trial because of gaps caused when Federal Bureau of Investigation agents repeatedly switched the recorder off and on, depending on whether Mr. Scrushy was in the room or whether there were other seemingly relevant conversations taking place.
Federal prosecutors acknowledge that the recordings "are not flawless," according to a court filing, but the government has argued that the tapes contain "a wealth of valuable evidence" that shouldn't be tossed out because of accidental recording glitches.
Ex-HealthSouth CEO Challenges FBI Recordings January 10, 2005

The defence accused the government of ethical breaches and also took the prosecutors initiation of a trial by media head on by doing it even more successfully. This caused prosecutors to object.

Since then, his (Scrushy) lawyers have frequently questioned the credibility of expected government witnesses in print and over the airwaves. This month, the (Scrushy) attorneys filed an ethical complaint against prosecutors who are preparing to try Scrushy in Birmingham federal court in August.
The prosecutor's request includes a transcript of the March 11 Paul Finebaum radio show, broadcast live every afternoon from Birmingham and heard in surrounding states, during which Watkins blasted the prosecution and its expected witnesses - the former employees who have pleaded guilty.

"If you're a U.S. attorney trying to go from U.S. attorney to federal judge, you need to bring down a big fish," Watkins said on the radio show, according to the federal request.

On the same program, Watkins "accused the government of manufacturing evidence and witness tampering," the gag order request says. Some of the comments "were specifically designed to influence the jury pool," the request says.
Prosecutors seek to gag Scrushy lawyers : Says public comments contaminate jury pool Birmingham News March 26, 2004

U.S. prosecutors trying former HealthSouth Chief Executive Richard Scrushy for accounting fraud asked a judge Thursday to order his lawyers not to discuss the case with news outlets.

Prosecutors say comments by the defense have poisoned the jury pool and are an unfair attack on the government.
The defense team is "threatening to undermine the integrity of the judicial process," the request says. "The court has a duty to address those threats."
"This will be one of the major battles in the case, and we plan to fight it," Watkins said. "I think it's retaliation for our ethics complaint; I think they are afraid because they have no evidence, and I think they know they will lose."
The government's request also seeks to bar Scrushy from talking about the case. The Selma native began hosting a talk show on Birmingham morning television this month. He hasn't discussed the case on the show or spoken about it in any public forum since he pleaded not guilty. His lawyers, particularly Watkins, have.
Prosecutors seek to gag Scrushy lawyers : Says public comments contaminate jury pool Birmingham News March 26, 2004

President Bush, who made comments about corporate fraud in a visit to Birmingham last year, is part of a government publicity campaign against fired HealthSouth CEO Richard Scrushy, defense lawyers claimed Friday.

Answering a government request for a partial gag order in the case, the defense accused prosecutors of creating a media frenzy that included the comments by Bush and leaks and news conferences by prosecutors.
"After having its way with Richard Scrushy for almost 18 months including improper leaks during the grand jury stage of the case ... the prosecutors in this case have now decided that the climate is right for them to declare a freeze on public comment," the defense argued.
Scrushy: Bush part of government blitz in HealthSouth case The   (Associated Press) April 2, 2004

U.S. District Court Judge Karon Bowdre effectively gagged the prosecution and Richard Scrushy's defense team on Tuesday, saying only the former HealthSouth CEO himself can speak about the accounting fraud charges against him.
Bowdre noted that the prosecution and Scrushy's legal team have orchestrated press conferences or have appeared in a variety of media outlets, including Scrushy's appearance on CBS' "60 Minutes" news program. Scrushy also has a talk show that airs on a Birmingham television station weekday mornings.

The judge did not preclude Scrushy from speaking on his own behalf.

 One legal observer noticed that both sides were playing to the press.
Bowdre said in an opinion memoranda that the prosecution has "through press conferences, press releases and statements created and/or played to the intense publicity surrounding the SEC investigation and civil suits, the guilty pleas of various former Healthsouth employees and officers and the indictment of Mr. Scrushy.

"The trial is to take place in the court and not in the newspapers, on radio, or TV or Web sites," Bowdre had said on Friday during a hearing.
U.S. judge says ex-HealthSouth CEO Scrushy can talk Reuters April 13, 2004

 A federal judge raised the prospect yesterday that fired HealthSouth Corp. chief executive officer Richard Scrushy could be jailed if the defense again violates a court order limiting publicity ahead of his January federal trial in a massive fraud.
Bowdre's ruling came after testimony in a hearing showed that Scrushy apparently approved the release of a defense statement criticizing government witnesses earlier this week.
Bowdre ordered Scrushy and his lawyers to court for the hearing after the defense issued a public statement saying a government document implicating Scrushy in the $2.7 billion accounting fraud at HealthSouth was based on "lies and inconsistencies."
HealthSouth's ex-CEO reminded to keep quiet Philadelphia Daily News (Associated Press) December 9, 2004

 While Scrushy used the media to attack his detractors, he sued those that were critical of him. The portrayal of Scrushy as an upstanding moral god fearing citizen was a key to Scrushy's claims and the defence's case. The paper sued was the widely read local paper in the city where Scrushy was to be tried. The question is whether this was a strategy or came from Scrushy's heart and his belief in himself. We are inclined to cynically ascribe such actions to opportunism or strategy but Scrushy may see it very differently.

HealthSouth Corp. founder Richard Scrushy, who faces a criminal fraud trial next month, sued an Alabama newspaper Monday over articles and cartoons that Scrushy claims are defamatory.

The libel suit claims the Birmingham News, which is owned by Newhouse Publications Inc., is trying to convict Scrushy in the press with its coverage of his accounting fraud trial, Scrushy's lawyer said.
"It is outrageous, intolerable, mean-spirited and beyond the bounds of decency what the Birmingham News has done to an honorable man during the last 21 months," lawyer Julian McPhillips said.
HealthSouth Founder Sues Paper for Libel LA Times (Bloomberg News) December 21, 2004

There were some strategies probably aimed at delaying, such as the late demand of multiple documents from HealthSouth.

Fired HealthSouth CEO Richard Scrushy wants his former employer to turn over years of financial records, personnel information and news releases on the eve of his trial on corporate fraud charges - a request the company objected to Thursday as unreasonable.

HealthSouth Fighting Subpoenas From Ex-CEO Forbes January 6, 2005

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Religion and Race

 Religion and race became an integral part of the trial. The many press reports might lead us to conclude that this trial really occurred in the community, that it was more about a perception of righteousness than fact and that the trial itself was simply the public arena for the expression of the result. The reports describing Scrushy's religiosity are worth reading and reflecting on. They tell us much about Scrushy but at the end just what do we make of it?

When Martha Stewart was indicted, she turned to Barbara Walters for a sympathetic broadcast interview. When Ken Lay was indicted, he turned to Larry King.

But former HealthSouth (HLSH) CEO Richard Scrushy, whose trial on charges stemming from a $2.7 billion accounting fraud is scheduled to begin in January, is reaching out to a higher power: Jesus. Since March, Scrushy and his wife, Leslie, have been hosting a half-hour talk show every weekday morning on a local independent TV station here. Although Viewpoint occasionally tackles subjects such as media bias and self-improvement, Scrushy's bread-and-butter topic is the Bible and the importance of following the word of God. To that end, Scrushy books a steady stream of local ministers and pastors as guests.

Scrushy, 52, used to attend church services in Vestavia Hills, the affluent suburb where he lives. But last year, around the time of his indictment, he began attending the Guiding Light Church, a ministry across town that caters primarily to African-Americans. Early this year, Guiding Light purchased 12 months' worth of airtime for the show. Scott Campbell, general manager of WTTO Channel 21, would not disclose how much Scrushy's church paid, but he says about 5,000 Birmingham households tune in each morning. "This is a paid program, just like the Ginsu knife commercials," Campbell says. Critics of Scrushy's show see it as a cynical attempt to generate goodwill among potential jurors in the Birmingham area, which is about 70% African-American. "I've never seen the show because I don't watch infomercials," says Doug Jones, the Birmingham attorney leading a shareholder lawsuit against Scrushy. "It's clear that it's a jury selection strategy, and I guess it will remain to be seen how effective it might be."
"I don't automatically disagree with people who decide to use the media," he (Rusty Hardin, the Houston attorney who defended Enron auditor Arthur Andersen) says. "The dilemma for somebody like Scrushy is that the government uses official press conferences to create an impression of people that they're powerless to counteract unless they do something in response."
 According to a statement from Russell, "Richard was raised in a churchgoing family and was saved at age 11. He felt called to the ministry at age 15 but put that call aside when he moved into teaching and then business. He has regularly attended church throughout his adult life and is married to the daughter of a minister." Of his show, the statement says, "Viewpoint resulted from Richard finding time on his hands while awaiting trial. He sees the daily television program as a community service, providing uplifting programming while providing access to pastors and others performing essential services in the community which could not find a voice on ordinary commercial television."
To watch the show is to get a glimpse of Scrushy, the charismatic leader. Most mornings, Viewpoint opens with a prayer from Leslie Scrushy, but it is Richard who animates the program. He's no stranger to the stage.
Some of his monologues on God sound like speeches from his CEO days. During the Oct. 5 telecast, Scrushy talked about the power of faith and belief, criticizing people who whine about their circumstances, "talking and groaning and, 'I don't think I can do this' ... rather than taking a positive attitude and realizing where they need to be in Christ, and where they need to be every day in Scripture and where they need to walk." Scrushy's call to the Christian faithful sounded similar to the motivational speech he gave to employees soon after founding HealthSouth in 1984.
"When we were called and given the opportunity to do this television show," Scrushy continued in the same telecast, "we called up some of our dear friends and people we believe in. (They said,) 'You don't want to do that. That's too much work. You'll be attacked.' They were right. You know what those people are saying today? 'Thank God you did this.' We saw an opportunity. We saw a ministry. This wasn't about Leslie and Richard. This is about God."

Moments later, Scrushy delivered a message that would sound strange to the enemies, real and perceived, he has accumulated in his career: "It's not what people say about you that matters. It's what God sees in you that matters." That's a radically different message from the one found on Scrushy's own Web site,, which regularly blasts stories from the local paper that he deems unfair. As CEO of HealthSouth, Scrushy took legal action against people who criticized him. The Birmingham News reported that in 1998, for example, Scrushy hired a private investigator to uncover the identity of someone who criticized him and his family on an Internet message board, and then sued that individual for libel.
He named his infant son Jaden Malachi, an Old Testament name that means messenger of God. According to his Web site, Scrushy's wife gave birth to the boy (Scrushy's ninth child from three marriages) in September. On his Oct. 5 show, Scrushy talks about raising children and laments the materialism that has taken over society. He urges his viewers to think twice about the advertising that bombards them. "It's a real problem. If you can put God in your life, and you have a church, you've got a pastor that is teaching and feeding you, you've filled yourself with the spirit and accepted Christ, you become somebody else. Once you are filled with the spirit, a lot of that stuff (advertising) doesn't sink in anymore."
Despite the wealth and Scrushy's previous reputation, Hammock (priest) says he's impressed with the man he's come to know the past year. "I have spent a lot of time with Richard," he says. "I have seen extreme genuineness. I've looked and I've found a genuine man, a very tender man, a man who talks about his desires and dreams."
 Outside Guiding Light Church in a suburban neighborhood beyond the Birmingham airport, where Scrushy attends Sunday services and films his TV show, the message board displays the following exhortation from Pastor Jim Lowe: "Don't abort your trial. God is about to birth something great."
 Former HealthSouth CEO Scrushy turns televangelist USA TODAY October 24, 2004

 The members of Guiding Light Church welcome Richard M. Scrushy, the ousted founder of the HealthSouth Corporation, with open arms each week to services, where he and his wife are among the handful of whites in a mostly African-American congregation.

"I've seen him in services so often with members of his family," Pat Lowe, the wife of the Guiding Light pastor, said of Mr. Scrushy, who is married for a third time and has nine children. "I believe he is a man of integrity."
It is not uncommon, of course, for someone in the public eye who has fallen from grace to migrate to a house of prayer. But Mr. Scrushy's new emphasis on his ties to Birmingham's large black population and his churchgoing ways have many people in this city asking, is it all part of his defense strategy? About 70 percent of Birmingham is African-American, and of the 18 jurors and alternates at his trial, 11 are African-American.
In the months before the start of his trial on Jan. 25, Mr. Scrushy seems not to have missed an opportunity to portray himself as a friend of Birmingham's black community. His personal Web site describes his humble origins in Selma, Ala., "a town known as the birthplace of the civil rights movement," where he says he apprenticed with a brick mason and washed cars at a filling station.

He also hired prominent black lawyers to help guide his legal strategy, including Donald Watkins, a lawyer and financier who successfully defended Birmingham's first black mayor, Richard Arrington Jr., in a government investigation into corruption allegations.

And for nearly a year, Mr. Scrushy and his wife have hosted a daily evangelical television show taped at the Guiding Light Church and intended for audiences in Birmingham. In one of the first episodes of the show, "Viewpoint," he compared the news media to "old Satan sneaking in the back door" and later used the program as a pulpit for his views on God, morality and federal efforts to put him in jail and seize his $278 million fortune.

Mr. Scrushy's son-in-law, Mike Plaia, owns the local television station that was broadcasting Mr. Scrushy's religious program and is now also showing a 30-minute program each day on the trial itself.

 These actions have astounded some former associates of Mr. Scrushy, who was known around Birmingham for the conspicuous display of his wealth before his problems with the law.
"In all my visits to the executive suite at HealthSouth, I never saw a black person there, not among the executives, the doctors or the secretaries," said Paul Finebaum, a radio talk-show host and former business associate of Mr. Scrushy. "The first time I heard religion and Richard Scrushy mentioned in the same sentence was when I read about him going to Guiding Light Church. I think he must be running out of options."
Mr. Scrushy and his advisers have rejected criticism that his actions were motivated by a desire to influence the jury at his trial. Only one dissenting juror is needed for a hung outcome, a decision that could spare Mr. Scrushy a lengthy term in prison.
Mr. Russell (spokesman for Mr. Scrushy) added that Mr. Scrushy decided to start attending services at Guiding Light after watching the church's pastor, Jim Lowe, on television while exercising. "He felt called to attend that church," Mr. Russell said.

 Still, Mr. Scrushy's effort to refashion his image is a dramatic shift for someone from Vestavia Hills, the upscale district south of Birmingham, where he still lives in a 20-room estate with a helicopter pad.

 "There is a type of race-baiting in this case that is so blatant it can backfire," said Allen Shealy, a forensic psychologist in Birmingham who also works as a jury selection consultant. "This has the potential to anger people about their religion being used, their race being used."
"Everybody goes down," Mr. Scrushy was recorded as saying in early 2003, in a discussion with a HealthSouth aide, if discrepancies with accounting practices were made public. Still, despite whatever testimony or evidence the United States attorney's office introduces during the trial, many people here have their minds made up about the defendant. Some of his supporters, which include members of Guiding Light and other churches, even sit behind him in court each day of the trial, clutching small Bibles.

"He comes from very humble beginnings so he understands what it means not to have," said E. B. McClain, a state senator from Midfield, Ala. Mr. McClain said he remained grateful for a gift of $1 million that Mr. Scrushy made in 2002 to Lawson State, a predominantly black community college in Birmingham, one of many philanthropic donations made by Mr. Scrushy in Alabama. In recent months, Mr. McClain said, Mr. Scrushy has dropped in at services at African-American churches around Birmingham in addition to his time at Guiding Light.

"Churches are the ones who believe in forgiveness and praying with the individual," Mr. McClain said.

"He has the financial wherewithal to attempt this strategy and a lot of people are fascinated, wondering, will he get away with it?" said Don Cochran, a former federal prosecutor in Birmingham who is now a professor at Cumberland School of Law. "The danger is if the jury feels like it's being manipulated. Juries don't react too well to that."

No one can tell how the jury will measure Mr. Scrushy, but there are those who have attended services at Guiding Light with him and come away with distinct impressions.
Will the Real Richard Scrushy Please Step Forward New York Times February 17, 2005

Richard Scrushy's charitable foundation gave Guiding Light Church $1.05 million in 2003, the foundation's biggest gift in the year that an investigation revealed accounting fraud at HealthSouth and prompted charges against its founder.
Lowe said Scrushy has a history of giving money to predominantly black schools such as Miles College and Lawson State Community College. He directed HealthSouth to purchase Fairfield's struggling hospital, which served a large number of black patients.

"He was doing that before his trial came up," Lowe (Bishop Jim Lowe, pastor at Guiding Light) said. "My question has always been: Where were all of the white entrepreneurs and benefactors before? Here is a man who was doing something for the black community long before this trial came up. He's merely doing the same thing he always did."
Lowe said Scrushy has become an active member of Guiding Light, teaching an entrepreneurship class and attending retreats. Scrushy also gives Lowe and other church officials financial advice.

 Scrushy uses Guiding Light's studios to produce his television show, "Viewpoint," hosted with his wife, that regularly features black preachers as guests. Lowe said Guiding Light brokered the purchase of the TV time, but Scrushy reimburses the church through sponsorships. Alamerica Bank, owned by Scrushy attorney Donald Watkins, is a sponsor.

Lowe said some members of his congregation have raised questions about Scrushy's reasons for attending Guiding Light. That prompted him to have Scrushy speak to the church during a Wednesday night service earlier this month.
"He's been a blessing to us to see him continuously put his faith in Jesus and the onslaught he takes is a very inspirational thing to the vast majority of the congregation," Lowe said. "People will constantly say it's manipulative, and then we're seeing the truth of understanding the lies that people are saying about him. Seeing those lies is an eye-opener. Black people are not the only people that are railroaded by lies, and we see even whites railroad whites."
Scrushy foundation gave $1.05 million to Guiding Light The Birmingham News February 24, 2005

 As members of Point of Grace Ministries, a Pentecostal congregation, pulled into the church parking lot on a Sunday evening early this month, they drove past a blue and white marquee blaring the featured attraction:

"Join us tonight at 6 pm for a good time in Jesus. Special guest Richard Scrushy.

An hour later, the ousted chief executive of HealthSouth Corp., now on trial over a $2.7 billion, nearly seven-year accounting fraud at his company, was at the pulpit. Jesus one day will separate the blessed from the cursed, he said, quoting Matthew, just as a shepherd separates his sheep from the goats. "We can choose to be a goat or we can choose to be a sheep. We can choose to walk with the devil," Mr. Scrushy said, stepping from one side of the pulpit to the other. "Or we can choose to walk over here, with Him."

As a parade of witnesses has testified in federal court here to Mr. Scrushy's knowledge of the HealthSouth fraud, he and his attorneys have mounted a righteous rejoinder. They've pilloried government witnesses for their moral failings, while casting Mr. Scrushy as a target of overzealous prosecutors lost in their own complex accounting theories.
Meanwhile, Mr. Scrushy has been preaching regularly for months at fundamentalist churches and appearing daily in a Scripture-laced morning TV show. Prosecutors privately contend it's all a bid for sympathy in this Bible Belt city, or an effort to reach jurors indirectly through family or friends. Mr. Scrushy denies it is anything of the sort, as do his attorneys.
On Mr. Scrushy's TV talk show each weekday before court, at least 200 Christian ministers have been guests over the last year, by his count. Clergymen often accompany Mr. Scrushy to court. So do churchgoers such as Mona Beck, who spends much of her time there reading from a Bible in her lap and praying.

His preaching is often at churches with large African-American congregations. Of the 12 jurors and four alternates, nine are African-Americans. His preaching "isn't about influencing jurors," Mr. Scrushy says in an interview.
"Brother Richard has been with the Lord all his life," says Bishop Lowe. "As near as I can determine, he was always there."
 While many in Birmingham scoff at Mr. Scrushy as an opportunistic convert, religion has long been part of his life. As an 11-year-old, he accepted Jesus as his savior during a seven-day church revival in his native Selma, Ala., he says. Ten years later, he attended Bible studies at friends' houses that discussed the teachings of Jesus in the context of the Civil Rights movement, according to a friend, John Tabor.
There is one sign his church appearances have impinged on the trial. The unexplained dismissal of a juror last month resulted because the juror belonged to a church where Mr. Scrushy had preached, say two lawyers familiar with the case.
The Scrushy lawyers have also sought to make the moral laxity of some HealthSouth executives part of the defense. They signaled this intention in September 2003, just before prosecutors obtained an indictment of Mr. Scrushy. His lawyers sent prosecutors a document warning that the lawyers knew of "unsavory conduct" of key witnesses and noted that "the government will rely on such witnesses at its peril.... In a highly visible, national case, such backgrounds will inevitably surface in some form."
On Wednesday evenings and on Sundays, he often preaches. He says he has become an ordained, nondenominational Christian preacher. Mr. Scrushy says his lawyers asked Judge Bowdre for a list of churches the jurors attend so he could avoid them.

At Point of Grace Ministries on May 1, a mixed-race congregation watched as Bishop Dusty Hammock performed five full-dunk baptisms. Then Mr. Scrushy's wife, Leslie, was called to the pulpit. (In an interview, Ms. Scrushy says the embarrassment of the trial -- in which she says her husband has been unfairly dragged through the mud -- has made her no longer embarrassed to express her faith publicly. She also says that she sometimes speaks in tongues, an ability many Pentecostals regard as a gift from the Holy Spirit.)

Then Mr. Scrushy took the pulpit. He preached for 47 minutes, swinging from booming Southern cadence to tear-choked whispers. "I not only talk to God, I listen to Him," he said.
He closed with a prayer, and the "Amens" gave way to a standing ovation as he walked down the steps to stand next to his wife. Soon, at Bishop Hammock's direction, many in the congregation were laying hands on Mr. Scrushy's shoulders and praying for him.

 Bishop Hammock also thanked the couple for their message. "People around the city know that we're friends with the Scrushys. They ask us all the time: 'He's guilty, isn't he?' They'll do it like that: 'He's guilty, isn't he?' And we go, 'Let me tell you something.... Everything I've seen in their life is a display of innocence and a display of character and integrity in God."
Faith and Hope : For Former HealthSouth Chief, :: An Appeal to Higher Authority THE WALL STREET JOURNAL May 13, 2005

More than a dozen supporters of Mr. Scrushy, both white and black, gathered in the lobby of the federal courthouse here on Tuesday afternoon.

"We believe in God, and what God wants is for Richard Scrushy's innocence to be shown to that jury," said one supporter, P. Donald Wilder, who identified himself as a minister.
"There is not one e-mail, not one fax, not one document on their side," said Mr. Scrushy, accompanied by his wife, Leslie, who was clutching a small Bible.
Jury Hints of Impasse on Verdict on Scrushy The New York Times May 25, 2005

Throughout the six-month trial that led to Richard Scrushy's acquittal in the $2.7 billion fraud at HealthSouth Corp., a small, influential newspaper consistently printed articles sympathetic to the defense of the fired CEO.

 Audry Lewis, the author of those stories in The Birmingham Times, the city's oldest black-owned paper, now says she was secretly working on behalf of Scrushy, who she says paid her $11,000 through a public relations firm and typically read her articles before publication.
The firm wrote another $5,000 check that day to the Rev. Herman Henderson, who employs Audry Lewis at his Believers Temple Church and was among the black preachers supporting Scrushy who were present in the courtroom throughout.

Audry Lewis and Henderson now say Scrushy owes them $150,000 for the newspaper stories and other public relations work, including getting black pastors to attend the trial in a bid to sway the mostly black jury.
Scrushy said he ''hit the ceiling'' when he learned that the PR firm had paid Henderson but added that he had considered Audry Lewis to be ''a nice Christian woman that thought we had been treated badly and she wanted to help.'' 

Now he said he knows they are both ''about the bucks.''
Audry Lewis' columns were uniformly flattering toward the defense, both before and after money changed hands. After Scrushy hired The Lewis Group, her stories moved from inside the newspaper to the front page.

The day jurors got the case, the Times featured a front-page piece by Audry Lewis saying ''pastors and community leaders have rallied around Scrushy showing him the support of the Christian and African American community.''
Scrushy gave Henderson's church and an associated thrift store five checks totaling $25,000 during and after the trial, according to copies of checks provided by Henderson.

Henderson said he was paid for his efforts to raise support for the defendant, but Scrushy said he had given money to the church because Henderson and Audry Lewis had asked for his help with a church building project.
Writer Says Ex-Chief of HealthSouth Paid for Positive Coverage The New York Times (ASSOCIATED PRESS) January 19, 2006

An analysis by The Birmingham News found that churches and religious groups received most of the $716,000 in donations distributed by the Richard M. Scrushy Charitable Foundation in 2005, the year pastors and leaders of those groups regularly attended Scrushy's fraud trial.

The trial in Birmingham ended with the HealthSouth founder and former CEO being acquitted. A separate trial in 2006 in Montgomery ended with Scrushy and former Gov. Don Siegelman being convicted bribery and conspiracy.

The 2005 charitable donations, revealed in tax records recently made public, show that of the 25 organizations receiving donations, only three had no apparent connection with a church or religious organization.
The transition from secular to spiritual donations reflects changes in Scrushy's own life. He has gone from being the well-known leader of a major healthcare corporation to being the founder of his own church and the host of an early morning television Bible show seen in Birmingham and Montgomery.
In 2004, his foundation made donations totaling $882,000, around $700,000 of which was to predominantly black churches and groups that made up the so-called "Amen Corner" that showed up daily at his six-month trial.

Pastors of churches that received money from the foundation have said their backing of Scrushy during the trial came out of support for a fellow Christian they felt was innocent of the charges, not due to donations from his foundation.

The donations in 2005 also went mostly to religious groups.

Tax documents show the largest donations in 2005 were $164,000 to Guiding Light and $151,075 to Project One, an organization headed by Pastor James "Scott" Moore of Trinity Life Church in Bessemer. Trinity Life also received a separate $37,000 donation from Scrushy's foundation in 2005.

Those numbers were a fraction of what the foundation gave in 2004, when it donated $313,000 to Guiding Light and $300,000 to Trinity Life, documents show. The foundation gave $11,000 to Project One that year.

Moore supported Scrushy during the trial and founded the Kingdom Builders religious organization with him. Moore has also been a regular guest on "Viewpoint," the religious television show hosted by Scrushy and his wife, Leslie.

Scrushy's foundation gave $107,000 to World Outreach Ministries of Jacksonville, Fla., led by Bishop Lewis Jones, who lived with the Scrushys during the trial and accompanied them to the courthouse most days.

Special Forces for Jesus, whose leader Sherry Connor was a fixture at the fraud trial, received $71,500 from the foundation last year.

"Willing Wenkins at Bethel Baptist Church" was listed as getting $25,000. Bethel Baptist received a separate donation of $18,000.

The Rev. Tommy Lewis of Bethel Baptist regularly attended the trial and is a member of Kingdom Builders' Apostolic Council along with Scrushy and Trinity Life's Moore.

Scrushy reported a $25,000 donation to Christ Temple Deliverance Church, whose pastor, Theo Bailey, has been a vocal supporter of Scrushy.

Three other churches whose ministers either supported Scrushy at the trial or appeared regularly on his TV show received donations ranging from $2,500 to $4,400.
Scrushy foundation gave most money to churches, religious groups The Montgomery Advertiser (Associated Press) January 2, 2007

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The charges

The fraud charges reflect the many press reports on this site and I will not dwell on them in detail. In essence they accuse Scrushy not only of being fully aware of the fraud but of being the driving force. They claim that he handed the accounting documents back to senior staff, when they did not meet analysts forecastes, telling them to fix them. He knew perfectly well what they were doing and discussed this with a small number of senior staff.

The initial 85 charges were later consolidated into 58 including some new charges. Scrushy denied them all.

Former HealthSouth Corp. head Richard Scrushy has been indicted on 85 counts in a massive federal fraud case that already has seen 15 former executives of the rehabilitating services giant plead guilty.

The indictment, dated Oct. 29 and released Tuesday at the federal courthouse, accuses Scrushy of a range of criminal violations including securities fraud and false certification of corporate statements.
Former HealthSouth CEO Scrushy Indicted The (Associated Press) November 4, 2003

Richard Scrushy, HealthSouth's ousted chairman and chief executive, was indicted Tuesday on charges of orchestrating one of the biggest accounting frauds in U.S. corporate history from 1996 to 2003.
"I am deeply disappointed to have my innocence questioned and contested," he said on his <>Web site. "The truth will emerge as I am able to confront my accusers and prove my innocence before a jury of my peers and the watchful eyes of our public."
The criminal charges against Scrushy carry a maximum jail sentence of 650 years and $36 million in fines, plus forfeiture of personal assets.
According to the indictment, Scrushy sought to control his co-conspirators through intimidation, threats, and installing equipment that allowed him to monitor their telephone conversations and e-mails.
Former HealthSouth CEO indicted : Feds want Scrushy to forfeit $278 million in assets CBS Marketwatch November 4, 2003

The indictment charges that Mr. Scrushy used threats, bribes, surveillance and eavesdropping to intimidate his lieutenants into participating in an effort to inflate the company's profits by $2.74 billion from 1996 to 2002. HealthSouth executives talked of "filling the hole" or "filling the gap" when they made false entries in the company's books, the indictment says.
And as early as the summer of 1999, the indictment says, a HealthSouth officer asked Mr. Scrushy to review financial data showing that the company was exaggerating its earnings. He "confronted" this person, the indictment says, ordering the executive not to try to tell him "how to run the company."
Former HealthSouth Chief Indicted by U.S. The New York Times November 5, 2003

"If you take a complicated case to trial, many, many things can happen," he (Alan Lieberman authority quoted) admitted. "But I must tell you, I don't think I've ever seen a white-collar case with five CPA/CFOs testifying [against the defendant] . It's going to be very difficult to make all of them out to be liars."
Scrushy's Prognosis Looking Worse Than HealthSouth's (Melissa Davis) November 10, 2003 (Authoritative comment)

HealthSouth inflated profit by $70 million in 1996, $700 million in 1997, $550 million in 1998, $390 million in 1999, $350 million in 2000, $450 million in 2001 and $230 million last year, according to an indictment of Scrushy.
Prosecutors said Scrushy collected $279 million in ill-gotten gains from fraud, including salary, bonuses and stock options that were based on the company's performance.
U.S. Details HealthSouth Losses LA Times November 11, 2003

Perhaps the prosecution realised it was losing the battle for the jury's minds and that allegations describing complex accounting activities would go over their heads. It tried to counter the defences strategy.

Assistant Attorney General Christopher A. Wray of the Criminal Division, U.S. Attorney Alice H. Martin of the Northern District of Alabama, and Carmen S. Adams, Special Agent in Charge of the FBI-Birmingham Field Office, announced today that a federal grand jury in Birmingham, Alabama has returned a 58-count superseding indictment charging Richard M. Scrushy, former chief executive officer and chairman of the board of HealthSouth Corp., in connection with a wide-ranging scheme to defraud investors, the public and the U.S. government about HealthSouth's financial condition.

The superseding indictment returned this morning adds charges of obstruction of justice and perjury to charges previously filed against Scrushy and consolidates some of the other charges from the initial indictment, which included conspiracy, mail, wire and securities fraud, false statements, false certifications and money laundering.

The government's court filing outlines six "crimes, acts or wrongs" that aren't part of the 85-count against Scrushy that alleges he falsified financial results by $2.7 billion since 1996. While legal experts say it's a common tactic to introduce sensational new evidence late in a case, the government's Wednesday filing shows that prosecutors plan to present to jurors acts that are perhaps more easily understandable than complex accounting fraud, such as Scrushy's alleged use of HealthSouth landscapers at his personal properties.

"Sexy evidence often trumps drab financial statements," said Jacob Frenkel, a white-collar criminal defense attorney with the Washington firm Smith, Gambrell, Russell. "On the other hand, the defense will probably object, saying the statue of limitations has passed and the only purpose behind the new material is to inflame the jury."
Watkins also said he was surprised the prosecution would publicly file sensational material. "That kind of material should have been filed under seal," Watkins said, pursuant to an earlier protective order issued to keep under wraps any speech about the case that might poison the jury pool.
"It appears the government is trying to show that Richard Scrushy saw no dividing line between what was his and what belonged to the shareholders," said Paul Lapides, a corporate governance professor at Kennesaw State University. "Misappropriation of company funds is something everyone can understand."
Prosecutors add new Scrushy allegations The Birmingham News September 29, 2004


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The trial

The jury selected for the trial was predominantly black and this must have pleased Scrushy and his team.

Lawyers picked a predominantly black, mostly male jury Monday for the federal fraud trial of fired HealthSouth CEO Richard Scrushy, accused in a more than $2.6 billion conspiracy that prosecutors claim financed a lavish lifestyle of mansions, cars and boats.
The majority black jury is viewed as a possible advantage for Scrushy, who is white but has attended a mostly black church since coming under investigation. He and his wife also host a TV talk show that frequently features black ministers discussing the Bible, and his lead attorney is a prominent black lawyer, Donald Watkins, who has tried to become the first black owner of a major league baseball team.

"It would appear from the outside that it has been Scrushy's attempt to make this case break along racial lines," said former federal prosecutor Don Cochran, who now teaches law at Samford University in Birmingham. "But I don't know that it's going to be successful. I don't think you can predict how this jury is going to go."
In a document filed late Sunday, the defense said it will not contest whether the fraud took place, so jurors don't need to hear about the losses. Instead, it will try to show that other executives pulled off the conspiracy by purposely hiding it from Scrushy, HealthSouth's primary founder in 1984.
Mostly black jury seated in fraud trial of former HealthSouth CEO Miami Herald (Associated Press) January 24, 2005

Opening statements summarised what the case would be about

Lead prosecutor Alice Martin described Scrushy as a "very demanding, very cunning" executive who told subordinates to inflate HealthSouth's profits but warned they would be on their own if they were caught.

"The case is going to really come down to one word: knowledge," the U.S. Attorney for the northern district of Alabama told 12 jurors and six alternates in opening arguments before a packed federal courtroom.

"We will present evidence that Richard Scrushy knew about the conspiracy, that he participated in the conspiracy and that he profited," Martin said.
"Look at what's not in the evidence," Parkman said. "Not a single memo, document or e-mail with Richard Scrushy's fingerprint on it."
Trial begins for former HealthSouth CEO Scrushy REUTERS Jan 25, 2005

In response, lead defense attorney Jim Parkman delivered a rousing indictment of the five former CFOs, who led what became known as "the family" at HealthSouth. It was the job of "the family" to inflate HealthSouth's quarterly numbers, he argued.
Parkman contended that the CFOs were in charge of a rogue operation within HealthSouth to oust Scrushy and take charge of the chain of rehabilitation centers. In response to charges of mail and wire fraud, Parkman added, "It's not going to matter who licked a stamp or who faxed that letter. He, Richard Scrushy, did not know, did not commit and did not participate in" the HealthSouth fraud.
Was CEO 'very cunning' or 'lied to'? USA TODAY January 26, 2005

The challenge for the prosecution was to prove that Scrushy knew and there was no documentary evidence of this. While it was difficult to believe that he could not have known this was not proof that he did know. It all depended on the testimony of HealthSouth staff, mostly convicted felons who were giving evidence in return for lenient sentences. One defence witness claimed Owens had told him Scrushy did not know.

To prevail in a criminal case, however, government lawyers must prove that the executives intended to break the law -- typically a tough case to make since corporate officials rarely leave a paper trail if they are engaging in fraud, said former SEC lawyer Jacob S. Frenkel.
Legal experts say the principle of chief executive awareness lies at the heart of the ongoing Scrushy trial, where three former HealthSouth finance executives already have testified that Scrushy ordered them to "fix" or "help" the numbers to meet ambitious earnings targets dating to the mid-1990s. In all, prosecutors say, a long-running fraud at the rehabilitation hospital chain amounted to $2.7 billion.
Law on CEO Awareness on Trial With HealthSouth's Scrushy Washington Post March 9, 2005

The trial judge had to make several rulings about the case and several charges were thrown out or challenged.

A federal judge refused on Thursday to throw out secret recordings that prosecutors say prove that Richard M. Scrushy, the former HealthSouth chief executive, was part of a massive fraud.

Judge Karon O. Bowdre, of Federal District Court in Birmingham, also ruled that the F.B.I. did not violate Mr. Scrushy's privacy by searching his HealthSouth office suite without a warrant.
HealthSouth Judge Allows Secret Tapes The New York Times (ASSOCIATED PRESS) January 21, 2005

Government lawyers set a "perjury trap" for Richard Scrushy in his March 2003 Securities and Exchange Commission testimony and inappropriately influenced the SEC's questioning of the former HealthSouth Corp. chief executive officer, a U.S. District judge in Birmingham, Ala., ruled. Judge Karon Bowdre dismissed three perjury counts against Scrushy in his ongoing criminal trial for allegedly orchestrating some $2.6 billion in accounting fraud at HealthSouth. - - - - - Scrushy now faces 55 criminal counts.
U.S. wrongly set 'perjury trap' for Scrushy, judge rules Modern Healthcare April 13, 2005

Meanwhile, in Scrushy's ongoing accounting fraud trial, U.S. District Judge Karon Bowdre in Birmingham vacated a decision to drop three perjury charges against Scrushy and said the charges would be dropped "at the appropriate time." - - - - - - - If all three perjury charges are dropped, as well as a money-laundering charge that Bowdre has said she will drop, Scrushy will be left facing 54 criminal counts.
HealthSouth's pre-scandal board members drop to two Modern Healthcare April 18, 2005

The prosecution rested its case Tuesday after 12 weeks of trial that included testimony by five former finance chiefs linking Scrushy to a $2.7 billion earnings overstatement.

Lawyers for Scrushy argue that the testimony by the CFOs and about two dozen other government witnesses proved no such link, and they asked Bowdre to dismiss all charges.
Gov't rests in ex-HealthSouth CEO trial Boston Chronicle April 20, 2005

The judge presiding over Richard Scrushy's criminal trial dropped two more charges against the former HealthSouth Corp. chief executive officer -- including one of the two remaining Sarbanes-Oxley Act charges, according to court filings. U.S. District Judge Karon Bowdre in Birmingham, Ala., denied a motion to drop 25 additional charges, including the last Sarbanes-Oxley charge, and reserved ruling on 12 other charges, according to the filings.
Scrushy still faces one Sarbanes-Oxley charge alleging he knowingly signed false financial documents and 47 other charges alleging fraud and money-laundering.
Another Sarbanes-Oxley charge tossed as Scrushy trial nears end Modern Healthcare May 12, 2005

The remaining Sarbanes-Oxley charge against Mr. Scrushy concerns a financial certification document he signed in August 2002. Because the financial data was fraudulent, the prosecution has argued, Mr. Scrushy violated Sarbanes-Oxley.

The judge may not be finished dismissing charges against Mr. Scrushy. She has expressed skepticism concerning 10 counts of money laundering. To prove each of those charges, prosecutors must show that more than $10,000 of tainted money went toward each purchase of items like racing boats, art, jewelry and vintage automobiles.
As Deliberations Near in Fraud Case, Scrushy Lawyers Win Dismissal of Two Counts The New York Times May 13, 2005

There were undoubtedly others out there who knew more but they had not been charged and when the defence tried to secure their co-operation they exercised their right to remain silent.

Lawyers for five former HealthSouth Corp. managers have filed a motion to quash subpoenas from Richard Scrushy's defense on grounds their testimony in the $2.7 billion corporate fraud trial of the ousted HealthSouth chief executive could pave the way for their own prosecutions.
The prospective witnesses - Pat Foster, Brandon Hale, Dan Riviere, Rick Schmitt and Larry Taylor - also express their intent to invoke their Fifth Amendment privilege if called to testify.
5 former HealthSouth managers seek to quash subpoenas; fear prosecution Birmingham Business Journal April 22, 2005

Scrushy wanted to give evidence but the defence decided against this. They were doing well.

Scrushy, accused of a $2.7 billion fraud, wants to proclaim his innocence to jurors in Birmingham, Ala., federal court, said Jim Parkman, one of his defense lawyers. Five ex-finance chiefs have implicated Scrushy. Prosecutors said they hope to rest their case next week
"He could make a misstatement," Parkman said outside the federal courthouse on Tuesday. "And that one thing can kill you. Fear of the unknown ought to scare any lawyer. It scares me. I don't want it blown over one little question."
Accused HealthSouth exec wants to testify Seattle Times (Bloomberg) April 8, 2005

The defense rested its case on Wednesday. Lawyers for both sides are to begin closing arguments on Monday.

"They found no smoking gun," Scrushy said outside the courthouse. "I can't believe in this country someone can be convicted of a crime without a shred of evidence."
The former CEO did not take the stand to defend himself, a legal strategy that has had mixed results for defendants in other high-profile corporate fraud trials.
The defense called only one witness who testified that Scrushy was not aware of the fraud -- James Goodreau, a former HealthSouth employee still on Scrushy's payroll.
That contrasts with five admitted felons -- all former HealthSouth chief financial officers -- who testified for the prosecution that Richard Scrushy orchestrated the fraud.

Defense rests in HealthSouth fraud trial Reuters May 11, 2005

In other words, Mr. Scrushy has not personally explained to jurors the essence of his defense that he was duped by underlings, former executives who have pleaded guilty to fraud and testified against him. Instead, he has simply held the government to the test, compelling prosecutors to prove that he knew of wrongdoing rather than trying to explain away why he did not. Deliberations resume Monday.
Big Paychecks Are Exhibit A at C.E.O. Trials The New York Times June 19, 2005

The judge was criticised because of her inexperience and the fact that she had not wanted the case. She went to considerable lengths to ensure that Scrushy had a fair trial. The complexity of the case, the numerous legal disputes about the admissibility of evidence must have been confusing for the jury.

The judge in Richard Scrushy's corporate fraud trial complained about being assigned the case in 2003, telling lawyers she was a "neophyte" in criminal law who knew a daughter and ex-wife of the fired HealthSouth Corp. chief, according to court documents.

Neither side asked U.S. District Judge Karon Bowdre to step aside, however, and Bowdre will continue presiding as closing arguments begin Wednesday. Jury deliberations are set to start Thursday.
HEALTHSOUTH CORP.: Trial judge didn't want to hear case Chicago Tribune (Associated Press) May 18, 2005

Speaking in an interview with The Birmingham News, U.S. District Judge Karon Bowdre said it wasn't her job to make sure prosecutors had an easy time during the trial, which began in January and ended Tuesday with jurors finding Scrushy not guilty on 36 counts.

"My obligation is to ensure the defendant - any defendant - receives the constitutional protections he or she is entitled to," she said. "It makes no difference to me who that defendant is or what the charges are. I am committed to that."
"I told a number of people that I didn't want this case from the beginning," said Bowdre, a former law professor who was appointed to the bench by President Bush in 2003, the year Scrushy was indicted. "I knew it would be high profile and that every decision would be scrutinized."
Judge Defends Handling of Scrushy Case AOL News June 30, 2005

As the case heads to the jury, prosecutors have been concerned about the outcome of their case, both because of its complexity and because of a casual atmosphere in court that they think could undermine the seriousness of the matter, according to a lawyer familiar with their thinking. Amid long stretches of accounting minutiae, Judge Bowdre sometimes has cracked jokes or made self-effacing remarks that lessen the tension but that prosecutors worry could cause some jurors not to take the proceedings as seriously as they should.

During questioning of one former chief financial officer, Weston Smith, a prosecutor got crossed up on some calculations. Both sides stopped to total some figures. The defense's Mr. Parkman then exclaimed that he actually understood the math this time. "You're not going to believe this," he told Judge Bowdre, "but I understand it."

"I do too, Mr. Parkman, and that is getting scary," the judge replied.

Prosecutors also express frustration about the dozens of bench conferences the judge has permitted, during which the sides argue legal points out of the jury's hearing. People familiar with the prosecution's thinking say some of its lawyers worry that Judge Bowdre's relative inexperience -- she has been on the bench since 2001 -- sometimes prevents her from ruling quickly. Still, in other cases, Judge Bowdre has developed a reputation for listening to both sides and preparing well for cases. The judge declined to comment, citing the judicial code of ethics.
Faith and Hope For Former HealthSouth Chief, An Appeal to Higher Authority THE WALL STREET JOURNAL May 13, 2005


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The evidence

The nature of the fraud was not disputed and there was no clear paper trail leading to Scrushy. The evidence of his involvement came from staff, most of whom were fellow conspirators who had pleaded guilty. It all came down to whether the jury believed them and considered that the evidence of these felons was proof beyond reasonable doubt. This was a complex case involving accountants and business managers. Disruptive legal disputations were ongoing. It would not have been easy for the jury


The essence of the government's case is illustrated by the release of the statement by Bill Owens, used to secure the warrant for the raid on HealthSouth.

Scrushy personally told management to bring per-share earnings to $1 in 1999 double the amount they should have been and he refused subordinates' requests to end the burgeoning fraud for fear of hurting stock prices, according to a sworn statement unsealed Monday that detailed claims by former HealthSouth chief financial officer William T. Owens.
Owens, who began work at HealthSouth in 1986, told agents Scrushy received weekly and quarterly revenue reports reflecting the company's true finances, according to Sizemore's statement.

"Owens personally observed Scrushy regularly reject the accumulated quarterly revenue figures, which were presented to him before quarterly and annual reports were to be filed with the SEC, and demand that changes be made to meet market expectations," the affidavit said.

Acting on Scrushy's orders, Owens "helped devise various schemes to arbitrarily inflate the revenue figures," it said.
The statement indicated that another former HealthSouth CFO who also pleaded guilty, Weston Smith, only heard from associates that Scrushy was demanding changes in revenue reports. Smith said he participated in meetings with a group called "the family" that helped inflate numbers after the true earnings were rejected by Scrushy, the statement said.

With Smith wanting to quit the company for fear of prosecution, Scrushy told him "we're not going to play games any more" with HealthSouth finances, according to the statement.
Ex-HealthSouth CFO Sounds Off on Scrushy ABC News Dec 6, 2004

Owens and Smith have never spoken publicly about Scrushy except to answer charges and plead guilty. Both declined to testify in a related civil hearing to seize Scrushy's assets last year.

U.S. Magistrate Michael Putnam in Birmingham, Ala., unsealed the affidavit upon the request of Scrushy's defense lawyers. His lawyers argued that the FBI's raid on HealthSouth's Birmingham headquarters to seize evidence in March 2003 lacked probable cause, according to court papers.
Alleged Fraud by HealthSouth's Scrushy Is Detailed in Affidavit LA Times (Bloomberg News) December 7, 2004


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Aaron Beam

Aaron Beam had been with the company since its inception and had been its first CFO. He had pleaded guilty. To bolster the credibility of its witnesses the prosecutors needed to show that Scrushy was so involved in the day to day operation of the company that he could not have been unaware of what was happening as he claimed.

Fired HealthSouth CEO Richard M. Scrushy was a "micromanager" extremely active in the company's operations as he helped build the medical rehabilitation giant, a HealthSouth co-founder said in Scrushy's corporate fraud trial.

The testimony of Aaron Beam, the firm's first chief financial officer, was aimed at bolstering the government's claim that Scrushy knew the company's earnings reports were being inflated to meet Wall Street expectations.
Beam, who returns to the witness stand Wednesday, testified Scrushy was very familiar with the company's finances and received weekly reports detailing everything from revenues to the number of patients treated at HealthSouth sites.

Beam helped Scrushy found the company in 1984 and retired in 1997.
HealthSouth co-founder portrays former CEO as 'micromanager' when it came to company finances San Francisco Chronicle (Associated Press) January 26, 2005

Beam, who has pleaded guilty to bank fraud, traced the bogus accounting back to the second quarter of 1996, when the company released its first earnings report with false numbers. He said this was done with Scrushy's blessing.

"We went into Richard Scrushy's office and said, 'We have fixed the numbers.' We told him we had created false, bogus entries," Beam said.
Beam said Scrushy told him and Owens: "If we are ever caught, I am going to deny everything. You guys are on your own."'

The former CFO said he was intimidated by Scrushy. "I was afraid he would do whatever to protect himself. Richard isn't the kind of person you cross," Beam told the court.

Beam's testimony was punctuated by numerous objections from the defense team and Judge Karon Bowdre ordered the attorneys to the bench several times during the contentious session.
"We've pushed it to the limit. We're not making our numbers," Beam testified he told Scrushy. 

Beam recalled that Scrushy told him: "It is not an option to miss your numbers. Fix the numbers."

Beam also testified that Owens as a former employee of Ernst & Young, HealthSouth's outside auditors, knew what magnitude of numbers would draw attention from them, so small but numerous false entries were used to escape scrutiny.

On cross examination, Scrushy's lead defense attorney, James Parkman, tried to paint Beam as a liar whose testimony or memory could not be trusted.

Beam appeared shaken and near tears at times, but he held his ground.

"How many times did you lie to the board, to analysts, to the shareholders?" Parkman asked Beam. "Did it get to be so much lying that you can't separate lies from the truth?" Parkman asked.
Former CFO Says Scrushy Ordered Bogus Accounting Reuters January 26, 2005

Trying to damage Beam's credibility before a jury that includes several people who are active in churches, defense lawyer Jim Parkman got Beam to admit to owning two nightclubs, drinking and putting up a woman other than his wife in a home before he left HealthSouth, where he also got her a job.

"Did you lie to your wife?" Parkman asked.

"Yes," said Beam.
Witness: HealthSouth Earnings Inflated Forbes (Associated Press) January 28, 2005

Then, during the cross-examination of former HealthSouth chief financial officer Aaron Beam Thursday, Parkman pulled off one of the most difficult tasks imaginable: He accused the government witness of being a lying, adulterous drunk, but did it - if this is possible - almost politely, in such a way that jurors wouldn't turn on him. (Beam confessed to having an affair but denied excessive use of alcohol.)
Scrushy's surprise switch to different lawyer appears smart USA Today January 31, 2005

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The absence of a paper trail was a key issue in the trial.

A $700-an-hour accountant who investigated the huge earnings overstatement at HealthSouth Corp. said yesterday that he did not find a paper trail linking the scheme to fired chief executive officer Richard Scrushy, who is on trial in the fraud.
After initial cross-examination that left one juror dozing, defense attorney Art Leach asked Kelly whether he had seen any e-mails, faxes or memos linking Scrushy to the fraud.

"Nothing that had his name on it," testified Kelly, who said he previously investigated fraud at companies including WorldCom Inc. and Adelphia Communications Corp. Clients are charged $700 an hour for his work, Kelly said.
HealthSouth fraud investigator: No Scrushy link Philadelphia Daily News (Associated Press) February 1, 2005

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William (Bill) Owens

Owens joined HealthSouth from auditors Ernst & Young and was at the heart of the fraud from an early stage. He was close to Scrushy and most of Scrushy's instructions were said to have been given through him. His credibility was crucial as was corroboration of his evidence. Scrushy claimed Owens was the chief conspirator and had framed him.

William Owens, the second former chief financial officer to take the stand for the prosecution in Scrushy's criminal fraud trial, echoed testimony given last week by ex-CFO Aaron Beam about the genesis of the $2.7 billion accounting fraud that Scrushy is accused of directing.

"I was instructed by defendant Scrushy to adjust those earnings," Owens told the U.S. District Court in Birmingham, drawing a smirk and shake of the head from the defendant.

"There was not an instance when I was CFO when he did not know the difference between the actual results and the published results," Owens told the court.
HealthSouth's Scrushy ordered false entries-ex-CFO Reuters Feb 1, 2005

Owens told the court of two employees who stumbled upon the fraud. Michael Martin, who later became a CFO, ended up joining the conspirators, while Leif Murphy, who was in the treasury department, left the company in August of 1999.
Owens said the day before Murphy quit, Murphy turned over a book he had compiled detailing the fraudulent entries. Owens testified that the insiders were "astonished" by the accuracy of the detailing of the fraudulent numbers.

Owens said Martin had told him to destroy the book but that he instead held on to it and turned it over to the FBI in March of 2003 as the scandal was breaking.
HealthSouth ex-CFO says Scrushy knew of fraud Reuters Feb 2, 2005

Owens described Scrushy as a master salesman who led with such sufficient fear and intimidation that employees acquiesced in the scheme, which prosecutors have described as a $2.7 billion earnings overstatement.

"I think Richard may be the best salesman I've ever met," said Owens. "He was able to convince me to do things I knew were wrong."
Workers used correction fluid on old invoices, whiting out legitimate numbers and putting in bogus figures, Owens said, and they falsely recorded $400 million in fraudulent "goodwill" assets when HealthSouth bought rival Horizon CMS for more than $1.5 billion in 1997.
Evidence has shown the fraud continued through 2002. Owens said Scrushy was behind it from the start and received regular reports showing the company's true financial state was inadequate to meet Wall Street's income estimates.
Scrushy presided over weekly meetings of corporate officers in which he would "call people out" if he didn't like something, he said. Scrushy alone decided who became an officer and set salaries, Owens testified.
Former HealthSouth CFO Comments on Scrushy ABC News (Associated Press) Feb 3, 2005

Executives involved in a $2.7 billion accounting fraud at HealthSouth had a catch phrase for holes created by fake numbers in the books. They called it "dirt," a former executive of the company testified on Wednesday in federal court.

  So when HealthSouth overestimated its earnings by $400 million in 1997, "that was $400 million worth of dirt," the executive, William T. Owens, told jurors on Wednesday.
He also testified about an order Mr. Scrushy gave in 1998 to destroy revealing documents - the weekly reports with the actual performance numbers for all 50,000 rehabilitation, outpatient and sports hospitals. While the documents should have been shredded, the United States attorney's office, which is prosecuting the case, obtained some copies and has introduced them as evidence.
Mr. Scrushy was even in charge of the seating arrangements in the corporate dining room, Mr. Owens said. "If I sat in the wrong place, I was told not to sit there."
Witness Tells of Maneuvers With Numbers at HealthSouth The New York Times February 3, 2005

In a DVD recording played Thursday on a big screen near the witness stand, a fast-talking Scrushy discussed management's "incredible control" of the rehabilitation chain and his own close watch over the company's finances and expenses.

"With the new budget team we have we are so tight," Scrushy said in the meeting, held in Orlando, Fla., for managers of hundreds of medical centers operated by HealthSouth nationwide. Prosecutors say HealthSouth's books were awash that year in more than $600 million worth of fraud ordered by Scrushy.
On the video played in the courtroom, Scrushy repeatedly told managers the company had a strong compliance program, checked reports of fraud and wouldn't tolerate wrongdoing.
Scrushy Jury Sees Video of HealthSouth CEO Forbes (Associated Press) February 4, 2005

In the video, Mr. Scrushy talks about the time he spends on the weekends going over company reports. "I'm all the time going over the numbers," he says.
Ex-HealthSouth Officer Testifies About Meeting Boss on Lake New York Times February 4, 2005

Owens said Smith, then a CFO, would not sign a quarterly filing with the US Securities and Exchange Commission or certify its accuracy in August 2002. After refusing to talk with Scrushy over the matter, Smith agreed to speak with Owens, then the company's president.

Owens, who pleaded guilty to the fraud and is testifying for the government, said Scrushy told him that "if we did not get Weston back to the reservation, it would be a problem".
HealthSouth founder 'offered bribe' Bloomberg February 8, 2005

At one point, in the fall of 2002, Owens and other executives considered removing Scrushy as chairman but decided against it, testimony showed.

Owens, who was CEO at the time, testified that he met on a Sunday afternoon with then-chief financial officer Tadd McVay and general counsel Bill Horton. Owens said the company was under "pressure" from the outside due to Scrushy's stock transactions, which had drawn shareholder lawsuits and a government probe.

The defense previously has portrayed the 2002 meeting at McVay's home as being part of a "coup" against Scrushy, who was then HealthSouth's board chairman. But Owens said the gathering did not result in any changes.

"My position was that Mr. Scrushy should not be removed as chairman, and I expressed that," said Owens.

Prosecutors showed the jury a copy of a later e-mail in which Scrushy chastised McVay for disloyalty.

The message to McVay read: "Cease making any negative comments about me and my leadership abilities to shareholders or analyst asap. I have received calls about your insubordination and I am taking this under consideration now. Richard scrushy."
Ex-HealthSouth Exec Tells of Secret Tapes Miami Herald (Associated Press) February 9, 2005

William Owens, the star witness in the prosecution of former HealthSouth CEO Richard Scrushy, testified that Scrushy began monitoring the e-mails of outside director Robert May because he didn't trust him.

Scrushy, relying on phone records, also asked Owens if he knew why HealthSouth director Joel Gordon had called the FBI's Montgomery, Ala., office in January 2003. "I asked Mr. Scrushy how he got that information, and his response was, 'You don't want to know,' " Owens testified.
Witness: HealthSouth ex-CEO monitored e-mails USA TODAY February 9, 2005

"The SEC ain't got nothing," Scrushy was recorded as saying in March 2003 after meeting with an investigator.

"We kept thinking he was going to have something," Scrushy told former Chief Financial Officer William Owens, who was wearing a recording device and cooperating with regulators, and former Senior Vice President Kenneth Livesay.
HealthSouth's Scrushy scoffs at SEC probe on tape Reuters Feb 9, 2005

Scrushy's comment to Owens on the tape about praying every day for God to allow them to hide the fraud is interesting in the light of his later religiosity. Note the way in which the word fraud is never used.

The defence suggested that Mr. Owens and prosecutors manipulated conversations and twisted Mr. Scrushy's words from otherwise innocent conversations.
Mr. Scrushy said he prayed every day "that God will give us time to get on the other side. We're building a great company."

He added: "If you want to go public with all of this then you might as well get ready for . . .. Get fired, it's all gone, everybody goes down. And it's all done."

In a phone call later the same day, Mr. Scrushy talked about his children. "Just remember I got eight kids and a bunch of babies at home," he told Mr. Owens, who has described Mr. Scrushy as the fraud leader. "They need their daddy."
HealthSouth fraud trial hears secret recordings : Ex-CEO on tape saying 'everybody goes down' if money problems go public Globe and Mail (Associated Press) February 11, 2005

Owens' credibility was a key factor in this trial and the defence attacked it seeking to discredit him.

The federal government's star witness against HealthSouth Corp. founder Richard M. Scrushy conceded that he lied to the company's board about a $1.3 million loan from the company.

The acknowledgement by William T. Owens that he misled Mr. Scrushy and other company directors about repaying the loan marked the first significant blow to his testimony. The onetime HealthSouth finance chief has repeatedly told the jury that Mr. Scrushy instigated the six-year accounting fraud that boosted the company's bottom line by $2.7 billion, but yesterday's admission could bolster claims by Mr. Scrushy's defense lawyers that Mr. Owens deceived his former boss about the fraud.
James Parkman III, the head of Mr. Scrushy's legal team, pounced on the discrepancy. "You lied to Mr. Scrushy?" he asked Mr. Owens. Mr. Owens responded: "On that one thing, yes." 

The exchange could poke holes in the credibility of the testimony of Mr. Owens, who continued yesterday to give steady, consistent responses in the face of the aggressive counterattack by Mr. Parkman. The defense lawyer wanted to show jurors that if Mr. Owens was willing to lie to Mr. Scrushy about the loan, then the former chief financial officer also would do whatever it took to cover up his responsibility for the accounting fraud at HealthSouth.

Mr. Parkman also characterized Mr. Owens as desperate for money and abusive of his power by using a company plane for personal trips that included golf outings. Mr. Owens acknowledged that he was delinquent in filing federal tax returns for approximately nine years, but insisted that he paid the "vast majority" of his overall taxes during that period. Mr. Owens denied Mr. Parkman's assertions that the tax settlement he is hammering out with tax authorities depends on his testimony against Mr. Scrushy.
In general, the discrepancies seemed to fall short of a knockout blow. Mr. Owens's confidence on the witness stand didn't waver, and at times his self-assurance during cross-examination approached an air of superiority. At one point, U.S. District Judge Karon Bowdre had to rein in Mr. Owens, telling him: "Just answer the question you were asked, sir."

Mr. Owens's poise under fire could create a risk for prosecutors if jurors interpret his courtroom demeanor as a sign that he was cunning enough to come up with the fraud and hide it from Mr. Scrushy.
Star HealthSouth Witness Lied To Board THE WALL STREET JOURNAL February 16, 2005

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Lief Murphy

Lief Murphy had uncovered the fraud in 1999 and after confronting Scrushy he resigned. Although he had signed a false document under pressure he had not been charged. He corroborated Owen's evidence and the defence would want to create uncertainty about his credibility. His notebook written at the time was the only documentary proof linking this to Scrushy.

Mr. Murphy testified that he joined HealthSouth in 1996, the year the fraud began. From his previous work as a banker following HealthSouth lending, Mr. Murphy said, he knew Mr. Scrushy as an active, involved chief executive. "He was very involved in the business," Mr. Murphy said. "He felt everybody at the company should be a performer."

HealthSouth Witness Tells of Recorded Conversation The New York Times (ASSOCIATED PRESS) February 17, 2005

A former HealthSouth Corp. vice president testified yesterday that he signed a false loan document after founder Richard M. Scrushy screamed at him in anger for discussing "fabricated earnings" at the company in 1999.

Leif M. Murphy, 36, had testified for prosecutors that Scrushy, who is on trial for his role in a $2.7 billion accounting fraud, berated him in July 1999 over his analysis that HealthSouth's earnings, if reported accurately, were 72 cents a share below the expectations of Wall Street analysts.

Scrushy attorney James W. Parkman III cross-examined Murphy to try to undermine his account. Murphy, who is not charged with a crime and worked in the company's treasury department, admitted he falsely certified on Aug. 17, 1999, that HealthSouth complied with terms of a $1.75 billion bank loan.
Murphy told jurors yesterday about meeting Scrushy in his Birmingham office to show him a financial analysis he completed in July 1999. Murphy said he found that HealthSouth faced a cash shortfall of $550 million for the year and that only "fabricated earnings" could fill the gap. He said he urged Scrushy to release accurate figures and lower company guidance.
"Mr. Scrushy barged in and was very heated," Murphy said. "He appeared very angry, and he began to shout at me, where do I get off telling him how to run his company that he has been running for 14 years."

Murphy said he submitted his resignation on Aug. 3, 1999, the day of an earnings conference call. He admitted giving a misleading answer about company debt "as a reflex" during that call. Murphy, who works now for Renal Care Group Inc. in Nashville, said he left HealthSouth by the end of that month. Murphy said Martin, who has pleaded guilty, initially tried to persuade him to stay and later offered him $1 million.

 Murphy said yesterday that Martin later grew angry and gave him an obscene card that told him to "eat [expletive] and die." Murphy said Martin "sucker punched" him twice in a bar fight at his going-away party. He said Martin "apologized profusely" after that incident, and "I accepted his apology."
Former HealthSouth Executive Describes Deception and Abuse Washington Post (Bloomberg News) February 18, 2005

He testified he realized something was wrong with the company's finances after seeing financial statements that, according to previous testimony, normally were viewed only by top executives involved in the fraud.

Murphy has said he quit HealthSouth in 1999 despite being offered $1 million to stay once he figured out the fraud. He said he had net assets of only $30,000 when he left.
Scrushy lawyers seek to discredit former HealthSouth exec Miami Herald (Associated Press)February 18, 2005

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Diana Henze

 Henze, who was not charged, knew about the fraud but did not implicate Scrushy.

A HealthSouth Corp. executive suspected financial wrongdoing as early as 1998 but her superiors ignored her concerns, according to testimony Tuesday in the fraud trial of fired CEO Richard Scrushy.
Henze, an assistant vice president of finance at the time, testified she told her supervisor, then-assistant controller Ken Livesay, that the big jumps "looked very suspicious" and that she suspected "something was going on."

A few days later, Henze said, then-controller Bill Owens called her into his office and explained that "things" had to be done or earnings would fall and "people would start losing their jobs." She said she also talked to then-finance chief Mike Martin about her worries.
Henze said she also reported her suspicions about questionable entries to Cullison in HealthSouth's compliance office, and Cullison testified she found some "large dollar amounts" in the company's accounts that looked odd.

But Cullison said internal auditors lacked access to corporate records where the fraud was committed, so a full investigation wasn't possible. She took the matter to corporate compliance officer Tony Tanner, who later told her the matter was closed despite no apparent review.

Tanner, who helped Scrushy found HealthSouth and served on the board, retired within weeks.
Cullison quit HealthSouth in 2001; neither she nor Henze was implicated in any wrongdoing.

HealthSouth Exec: Fraud Suspected in '98 Forbes (Associated Press) February 22, 2005

She never directly implicated Mr. Scrushy in her testimony, saying she discussed accounting irregularities she had discovered with other executives who have since pleaded guilty to fraud charges.
Ms. Henze said that in October 1999, she took her suspicions to the company's corporate compliance department and was subsequently passed over for a promotion that would have involved her even more intimately with financial reports. She said that when she asked why a less-qualified person got the job, Mr. Owens said: "You have made it clear you won't do what we asked."
Witness Says She Was Punished by HealthSouth for Her Qualms The New York Times (Reuters) February 23, 2005


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Teresa Sanders

Sanders seconded from Ernst& Young remonstrated with Scrushy over the employment of Ernst & Young to carry out non-financial audits which could be done cheaply in house by new graduates. She did not know of the fraud.

Internal auditors working under former HealthSouth CEO Richard Scrushy checked bathrooms and parking lots for trash but lacked access to corporate books where a huge fraud occurred, according to testimony Wednesday at Scrushy's trial.

Former chief auditor Teresa Rubio Sanders, who reported directly to Scrushy, said she and her eight employees were assigned to perform financial audits of individual HealthSouth facilities and do "white-glove" tests, called pristine audits, ordered by Scrushy.

"Mr. Scrushy wanted to make sure that anyone who walked into a facility got a certain level of service and each one looked a certain way," said Sanders, explaining a 50-point checklist that included things like looking around each facility for garbage.

But Sanders, who was hired by Scrushy in 1990 and quit in late 1999, said her office wasn't allowed to see the general ledger, where previous testimony showed a $2.7 billion earnings overstatement occurred from 1996 through 2002.
Access to books denied, internal auditor testifies : HealthSouth workers checked for service, trash Houston Chronicle February 23, 2005

A former HealthSouth Corp. executive testified that company founder Richard Scrushy, on trial for fraud, said she was ``lucky to have a job'' after she objected to an outside audit of the company's hospitals.

Teresa Sanders said at the Birmingham, Alabama, trial today that Scrushy scolded her for saying the audits were too expensive. According to testimony from ex-finance chief Bill Owens earlier in the trial, the "pristine audits'' that Scrushy first ordered in 1996 were meant to conceal a growing fraud by keeping scrutiny off the company's financial records.

``Mr. Scrushy called me to his office and was very upset at what he perceived to be my disagreement with the program,'' Sanders, a former Ernst & Young LLP auditor, said under questioning by U.S. Attorney Alice Martin. ``He told me I needed to pull the wagon and make this program work, and I was lucky to have the job I had because I had been laid off by Ernst & Young.''
Scrushy started the audits in 1996, paying Ernst & Young $500,000 to do the work.

Sanders said she suggested they hire entry-level college graduates to audit facilities because they were cheaper and could be trained in-house.
HealthSouth Witness Says Scrushy Dismissed Audit Concerns Bloomberg News February 23, 2005

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Ken Livesay

 Livesay was a major participant in the fraud and had pleaded guilty. He once confronted Scrushy about the fraud but most of the time his instructions came from others. His admiration of Scrushy even though he believed Scrushy was master minding the fraud says something about Scrushy's magnetism. This is fascinating testimony because of what it seems to tell us about Scrushy.

A chief mechanic of the huge fraud at HealthSouth choked back tears Wednesday at the trial of fired CEO Richard Scrushy as he testified that an exciting, visionary company resorted to bogus numbers when it couldn't meet earnings forecasts.

Former assistant controller Ken Livesay said he and other members of a group called "the family" ditched "aggressive accounting" practices and began inserting outright fraud into HealthSouth's books when Wall Street expectations outstripped the ability of the rehabilitation giant to make money.

"At some point in 1996, we crossed the line. We could no longer use those aggressive methods," he said. "We crossed the line from gray to black."

Livesay said he would download the company's true earnings into his computer, figure out how much fraud was needed to meet earnings expectations, and pass along the figures to two superiors in finance, Bill Owens and Mike Martin.

"They'd instruct me that 'We need to fill in that gap,' basically. So I'd figure out ways to make that happen," said Livesay, who pleaded guilty and has cooperated with prosecutors.
Former HealthSouth exec says he was told Scrushy knew of fraud USA Today February 2005

In his second day on the stand, former assistant controller Ken Livesay said he prepared a report in mid-1998 showing the rehabilitation giant had to pay $145 million in taxes on false income of $407 million when its real income was only $160 million.

"We weren't making enough money to pay our income taxes," he said.
"It was like a light bulb went off in his head," Livesay said of Martin. "He grabbed the schedule from me and said, `I've got to show this to Richard,' and he walked out of the office."
Former Exec: HealthSouth Had to Borrow Forbes (Associated Press) February 24, 2005

Kenneth Livesay told the U.S. District Court in Birmingham, where Scrushy is on trial facing 58 criminal charges, that during a meeting in early 1999 he confronted the CEO about the difficulty of continuing to report false earnings.

"Mr Scrushy was talking to me and he said: 'Hang in there. We are not going to have to do this forever. One of these days we are going to sell this company. We are going to make a lot of money, go to the lake and retire,'" Livesay told the court.
HealthSouth exec says discussed fraud with Scrushy Reuters Feb 24, 2005

Under prosecution questioning, Livesay described Scrushy as an intimidating leader no one would cross. Scrushy worked hard, was "incredibly talented and gifted" and could "achieve anything he set his mind to," Livesay said.

"Mr. Scrushy was the commander in chief. He had some generals who reported to him, and he had some captains, and he had a lot of lieutenants. I was a lieutenant," said Livesay.
"When something came to me, I had no reason not to believe it wasn't coming from the commander," said Livesay, speaking slowly in an apparent attempt to keep his emotions in check.
Witness calls Scrushy 'commander in chief' Miami Herald (Associated Press) Feb. 28, 2005

- - - - - - - but to confront Mr. Scrushy directly was a risk," Livesay said, indicating Scrushy did not welcome bad news and such messengers tended to find their employment future unstable.
"I was there for 14 years. I observed, worked for and admired Mr. Scrushy. He was an incredibly talented and gifted man, a very intelligent man. It was like he could achieve anything he set his mind to," Livesay said, adding, "It is inconceivable to me that something this massive was going on without his knowledge."
Scrushy trial: Witness still admires the accused chief executive The Birmingham Business Journal February 28, 2005

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Michael Martin

 Martin was at the centre of the fraud and had close contact with Scrushy. He testified that Scrushy knew of the fraud and that he (Martin) and McGahan from UBS, who also knew of the fraud discussed this with Scrushy. One of the fascinating things is that the one outside person who could have confirmed this was McGahan and he did not appear before the congressional committee or give evidence at Scrushy's trial. To have done so would have implicated UBS and they denied involvement. Some press reports suggest McGahan was overseas. He did give damning testimony against Scrushy at the later bribery trial.

Michael Martin said he and William Owens, another former CFO, told Scrushy of their plan to fraudulently write off $300 million in an effort to prop up the company's 1997 share price.

Martin told the U.S. District Court in Birmingham that Scrushy responded to the scheme by saying, "Damn, you guys are good" and asked them if they could get it past the company's auditors, Ernst & Young.
Another CFO Says Scrushy Knew of HealthSouth Fraud (Reuters) Feb 28, 2005

Michael Martin, 44, who pleaded guilty, testified at Scrushy's accounting-fraud trial that his boss received internal reports showing the company fell short of Wall Street analysts' expectations in the first two quarters of 1998. Martin said Scrushy, who was also chief executive officer, resisted lowering guidance given to Wall Street.
``We talked about the fact that we were going to have to make fraudulent entries to our books and records,'' Martin told a federal jury in Birmingham, Alabama.

Department of Justice lawyer Richard Smith asked Martin if Scrushy used the term fraud. ``No, we used terms like `help the numbers,'' Martin said. ```Help the numbers' was fraudulent entries in my mind.''
Yesterday, Martin testified that the company hid $400 million of the fraud in the $1.7 billion purchase of Horizon/CMS Healthcare Corp., in part by selling the new company's nursing home business.
Scrushy Discussed Fraud, Said `Help the Numbers,' Martin Says Bloomberg News March 1, 2005

Mike Martin, the third former chief financial officer to tie Scrushy to the fraud, spent his second day on the stand Tuesday. Martin said that Scrushy demanded inflated reports in 1998 because he and Martin had sold millions in stock, and Scrushy didn't want to get sued if stock prices fell.
"Every time I would push to lower expectations, I'd get slapped back and he'd say, `We can't, we sold stock last year,'" said Martin, one of 15 former executives to plead guilty in the scam.
Scrushy, HealthSouth's primary founder, knew all about the fraud and told underlings, "You know what to do" when the rehabilitation chain failed to meet Wall Street expectations by 16 cents a share in early 1998, Martin testified.
But testimony slowed to a crawl as Smith had Martin go through financial statements and budget documents for 1999, explaining how HealthSouth's "real" numbers showed the company earning 56 cents a share after Scrushy had promised analysts as much as $1.29 per share.

Martin described Scrushy as being heavily involved in corporate finances, undercutting defense claims that Scrushy was unaware of the fraud.
Ex-CFO Says Scrushy Feared Suits (Associated Press) March 2, 2005

Martin also testified that he brought UBS banker William McGahan to former Chief Executive Richard Scrushy's home to convince him not to buy Manor Care Inc., a nursing home and assisted living facility operator, in 1999 because of concerns that accounting fraud would be revealed.

"I told McGahan t hat he had to help me talk Mr. Scrushy out of this transaction because we were missing our numbers by $300 million," Martin told the court at Scrushy's criminal trial at the U.S. District Court in Birmingham, Alabama.

"If the transaction took place, we would all go to jail."
Martin also testified he felt "stuck" at the company as a result of fraudulent accounting. Scrushy told Martin he could not leave the company.

"Martin, you can't quit. You'll be the fall guy," Martin recounted Scrushy saying around the time the health care provider's books were being audited for the 1998 year.

"I was scared. I was intimidated. I felt stuck," Martin added.
Former CFO says banker knew HealthSouth fraud Reuters March 3, 2005

Martin also corroborated testimony by former HealthSouth treasurer Leif Murphy, who earlier said Scrushy yelled at him after Murphy confronted Scrushy with a report indicating the company had fabricated earnings. Murphy, who said he wasn't involved in the conspiracy but figured it out, was not charged.
Scrushy feared fraud revelations Associated Press March 4, 2005

Martin has pleaded guilty in the scheme, and Parkman brought out that his punishment of six months of home detention included seeing his wife and children, watching a big-screen TV and once even playing golf at a swanky country club.
"So you don't have that bumper sticker that says, `I'd rather be playing golf than go to jail?'" Parkman asked sarcastically.
After showing that Martin met with prosecutor Richard Smith as many as a dozen times before taking the stand, Parkman suggested authorities had coached his testimony placing Scrushy at the heart of the conspiracy. Martin denied being told what to say.
Previous testimony showed Martin yelled at the office and once punched another witness in a bar, and Parkman at times appeared to be trying to provoke him with rapid-fire questions asked in an angry or condescending tone. He called Martin a corporate "go-fer."

But Martin stayed cool rather than cracking, often leaning back in the witness chair.
Martin told Scrushy he was quitting at least two more times before he finally left, testimony showed, prompting Parkman to ask about the repeated resignations.
HealthSouth witness says he tried to quit Miami Herald March 5, 2005

Lawyers for fired HealthSouth Corp. CEO Richard Scrushy launched a tough cross-examination attack against a main prosecution witness, attempting to undercut Mike Martin's credibility by portraying him as a millionaire schemer on a "mood-altering" drug.
Martin also admitted taking Lexapro, described by manufacturer Forest Laboratories Inc. as a drug that treats depression and anxiety disorders.
Scrushy Defense Team Challenges Witness (Associated Press)March 10, 2005

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A J Rice

 The prosecution brought in outsiders who had deduced that something was wrong to suggest that Scrushy could not have been unaware

A.J. Rice, who covered HealthSouth for Merrill Lynch, told the U.S. District court on Thursday that in 1999 and 2000 he noticed an unusual spike in capital expenditures being reported by HealthSouth.

"They were spending twice as much to maintain investments than equivalent companies. The difference was striking," Rice testified, adding it was eating up 83 percent of HealthSouth's cash flow.
The prosecution was trying to show the jury that, if outsiders from Wall Street were becoming aware that something fishy was going on with HealthSouth's books, then surely the chief executive must have had a sense of what was going on.
"All (Rice) had was publicly printed information," Martin said. "Why didn't the CEO ask questions? The reason you don't ask questions is because you know it's fraud."
Analyst Says HealthSouth Spending Drew Suspicion (Reuters) March 10, 2005

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Malcolm "Tad" McVay

 McVay was another who had pleaded guilty in the fraud. He too implicated Scrushy, but not as closely as the prosecution might have liked.

Another former HealthSouth Corp. chief financial officer testified on Wednesday that ousted Chief Executive Richard Scrushy knew about the accounting fraud at his company and told him all companies fudge their numbers.
McVay, who had also been treasurer at HealthSouth, was not one of the original conspirators. But he testified that in 2002 he began to realize something suspicious was going on when he noticed a wide disparity between cash on the balance sheet and actual available cash.

"It just sort of clicked. It had to be a fraud to explain this disparity," McVay recalled.

He told the court that he took the information to assistant controller Emery Harris, who confirmed his suspicions.
McVay told the court of a secret meeting in 2002 at his home with Owens and legal counsel Bill Horton in which removing Scrushy as company chairman was discussed.

But Owens told Scrushy of the meeting and McVay said he got an e-mail from Scrushy accusing him of insubordination.
Another ex-CFO ties Scrushy to HealthSouth fraud Reuters March 16, 2005

Under cross-examination for a second day, former chief financial officer Tadd McVay grew testy as Scrushy lawyer Jim Parkman suggested he was lying about Scrushy's involvement in the fraud to gain favor with prosecutors including Richard Wiedis, who questioned McVay earlier.
Helping bolster part of the defense's case, McVay testified that former HealthSouth finance chief Bill Owens -- not Scrushy -- supplied the bogus numbers that Scrushy quoted during conference calls with investors.
Former HealthSouth CFO lashes out at trial The Boston Globe (Associated Press) March 17, 2005

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Will Hicks

Hicks was not one of the main conspirators but had pleaded guilty to making false statements to the auditors.

Another former executive who pleaded guilty, investments vice president Will Hicks, testified that Scrushy sent him an e-mail urging him to complete the sale of HealthSouth's partial ownership of CompHealth in January 2003, when HealthSouth was short on cash.

"Get it done and get most you can. We need this money bad," said the e-mail, which was shown to jurors.

Hicks said HealthSouth had put $1.5 million into CompHealth, a medical staffing company, and had an offer to sell it for $15 million. HealthSouth's stake later sold for $14 million, he said.
Former HealthSouth CFO lashes out at trial The Boston Globe March 17, 2005


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Weston Smith

Smith was the CFO who became alarmed at the implications of the Sarbanes Oxley laws and decided to tell the authorities what was happening. He implicated Scrushy directly.

Weston Smith, whose previous positions also included director of reimbursement and controller, was the health-care company's fifth ex-CFO to testify at Scrushy's corporate fraud trial that the CEO was involved in the fraudulent accounting.

"He was referred to as the king. He made every decision," Smith told U.S. District Court in Birmingham, adding that Scrushy completely controlled the board of directors.

"I had my own independent confirmation that Richard Scrushy knew about the fraud," Smith said, driving home the foundation of the prosecution's case.

Smith testified that by 1997, when he was in charge of reimbursement, the company was badly missing cash collection goals, drawing Scrushy's ire. Cash collection goals were set unrealistically high, he said, since the net revenue the company was reporting was artificially inflated.

Smith said he insisted on a meeting with Scrushy to discuss the situation.

 "I told him the cash collection goals could not possibly be met. It was a fantasy to think we could make the goals," Smith testified. "Richard responded: 'I'm setting a tone for the company. I know what is going on, don't worry about it.'"
 "I was very concerned about it because we were breaking the law and I was signing the documents," Smith said. "As an officer I had even more liability. I was signing publicly filed documents."

He said in August of 2002 he packed up some belongings and walked out of the Birmingham headquarters.

"It had gone too far. I was not going to continue being a part of this," Smith said, breaking down in tears on the witness stand.
He said Scrushy convinced him to come back by promising to halt the fraud that had gone on for years.

He said Scrushy told him: "We aren't going to play games anymore. We are going to run a clean company. What we earn is what we will report, no more creating numbers."

If Smith's account is true, it was a rare instance of Scrushy actually using a potentially incriminating phrase such as "creating numbers" rather than couching his discussions of the topic in vague euphemisms.

Smith said Scrushy completed his pitch to bring him back into the fold by saying, "We all rode in on this pick-up truck together and we'll all ride out on it."

It proved convincing and Smith returned.
HealthSouth exec says Scrushy made all decisions Reuters March 21, 2005

Describing an atmosphere of intimidation at HealthSouth, Smith said Scrushy would "humiliate'' subordinates who challenged him during meetings.

"He was referred to as the king. He made every decision,'' said Smith.
"He did not tolerate people who were not `yes' men. If you were not in the room you were a target, because he loved to talk about people behind their back,'' said Smith.
Members repeatedly asked if Scrushy knew of the overstatement, he said, and Scrushy aide Bill Owens, also a former CFO, told them Scrushy "knows everything that's going on.''

Smith testified he "wasn't the least bit surprised'' by Owens' remarks because he had discussions with Scrushy as early as 1996 about the company not meeting its goals for collecting cash.
Fifth Former CFO Testifies Against Scrushy The New York Times March 22, 2005

As testimony resumed after a weeklong break, the defense attorney, Jim Parkman, challenged Mr. Smith on everything from the dates of meetings to whether he had really cried during earlier testimony about a massive accounting fraud.
Mr. Parkman also suggested that Mr. Smith was trying to save his wife, Susan Smith, who was a senior vice president of finance at HealthSouth, a nationwide provider of health care services. Testimony has indicated that she may have met with people involved in the fraud, but she was not charged in the scheme.
Defense in HealthSouth Trial Tries to Undermine a Witness The New York Times March 29, 2005

Former HealthSouth Corp. Chief Financial Officer Weston Smith testified on Monday that former Chief Executive Richard Scrushy sold the company's stock knowing it was going to fall soon.

"Scrushy had to get rid of it before the stock plummeted. He knew the company was not meeting its earnings estimates and he was unloading the stock before it fell apart," Smith told the court during Scrushy's criminal fraud trial.
But when Smith was questioned about his previous testimony that he was worried about signing financial filings in August 2002 which he knew contained fraudulent figures and that he was considering quitting the company, he said Horton applied considerable pressure to sign the documents.

Smith testified that Horton told him at the time: "If you quit, the company will be investigated."

He said Horton likened being CFO of a publicly traded company to joining the Mafia. "Once you join, you can't get out," Smith recalled Horton telling him.
Ex-HealthSouth CFO: Scrushy traded on inside data Reuters Health March 29, 2005

The employees taking the calls reported to Scrushy and the hot line was "a joke," said ex-Chief Financial Officer Weston Smith.

Smith, a government witness at Scrushy's corporate fraud trial in U.S. District Court in Birmingham, Ala., also told prosecutors that Scrushy "surrounded himself with a large security force. They carried guns."
Parkman asked Smith whether he was trying to help out Owens when meeting with the FBI.

"I provided damaging information on Mr. Owens also," Smith said. "I didn't do any favors for Bill."
Exec Calls HealthSouth Hot Line a Joke LA Times (Associated Press) March 31, 2005

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Neal Seiden and Frank Morgan

 Two other outside witnesses were also aware that things were not as they should be. The implication being that Scrushy could hardly have been unaware.

Neal Seiden, a CPA with the SEC's division of enforcement, said his boss showed him an Atlanta Journal Constitution article discussing the stock fall-out in the wake of HealthSouth's announcement that revised Medicare reimbursement rates would impact the company's bottom line by $175 million.

"That's when the formal investigation started," Seiden said of the SEC probe, a precursor to the federal inquiry that uncovered the $2.7 billion fraud.
When the prosecution asked that the transcript of Scrushy's SEC testimony be admitted into evidence, the afternoon's proceedings ground to a halt.
Frank Morgan, an analyst with Jefferies' Nashville office, penned a report titled "The Bomb" on Aug. 27, 2002, in which he questioned whether HealthSouth officials "were not masking some yet-to-be-disclosed problem in another business line."
The witness said he typically asked "a lot of questions" of Scrushy, who delivered most of the financial report and fielded questions.

It was Scrushy's treatment of Transmittal 1753 in an August 2002 conference call - which Morgan deemed a "severe reaction" - that caused Morgan to dig deeper into the company's accounting affairs.

Previous testimony by a string of former HealthSouth chief financial officers detailed how Transmittal 1753 - a federal revision of Medicare reimbursement rates - was used to mask almost $155 million of fraudulent earnings. The company's actual cost for compliance hovered somewhere between $15 million and $20 million, but official HealthSouth financial reports estimated the hit at $175 million.
SEC agent says news report was tip to HealthSouth fraud Birmingham Business Journal April 4, 2005

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William Bavis

The prosecutors tried to show Scrushy as living lavishly from fraudulently obtained bonuses.

A day after prosecutors displayed photos of Scrushy's luxury cars and big boats in an attempt to show he bought them with millions of dollars made from a huge fraud at HealthSouth, defense lawyer Art Leach attacked William Bavis, an expert whose firm analyzed more than 34,000 transactions while reviewing Scrushy's personal accounts.
But under sharp questioning from Leach, Bavis struggled to explain whether tainted money linked to the fraud was reflected in certain transactions and figures.
HEALTHSOUTH CORP.: Scrushy's lawyers bash fraud analysis Chicago Tribune (Associated Press) April 16, 2005


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The defence did not bring many witnesses and some of them did not really support its case.

Jim Whitten

Whitten's testimony semed to help the prosecution.

A defense witness proved more useful to the prosecution in the corporate fraud trial of fired HealthSouth Corp. CEO Richard Scrushy, providing some of the most damaging testimony to date with descriptions of Scrushy's powerful management style.

Former HealthSouth vice president Jim Whitten winked at Scrushy several times and glowingly described him as the brains behind an aggressive marketing machine. He said Wednesday that Scrushy brainstormed ideas for TV programs and a magazine produced by HealthSouth, plus the company's defunct "Go For It!" road show featuring appearances by pro athletes.

"We wanted to create a branding for HealthSouth that was as well known as Coca-Cola," said Whitten.

Whitten also testified that Scrushy never demeaned employees - refuting claims by prosecution witnesses.

But Whitten's testimony about Scrushy's expansive power in the company stood as a coup for prosecutors and a possible setback for the defense.

He hesitantly admitted telling FBI agents during an interview that "nothing" went on at HealthSouth that Scrushy didn't know about - potentially damaging defense claims that Scrushy wasn't heavily involved in financial matters.

"I felt like Richard was the boss. He was the CEO," said Whitten.
Defense Witness Damaging to Scrushy San Francisco Chronicle (Associated Press) April 27, 2005

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Tony Tanner

A HealthSouth co-founder suggested that Scrushy did not deal with the accounts

The defense in Richard Scrushy's fraud trial portrayed the fired HealthSouth Corp. CEO on Thursday as a regular churchgoer and a leader who was detached from day-to-day finances, seeking to torpedo charges that he led a huge accounting fraud.

One of Scrushy's co-founders at HealthSouth said someone else handled finances in the company's early days. Another former colleague said he first met Scrushy through charity work; the two later attended Sunday school together.

The portrait that emerged at Scrushy's corporate fraud trial contrasted with prosecution claims that Scrushy was a micromanager who ruled HealthSouth with an iron fist and directed a $2.7 billion earnings overstatement while getting fabulously rich.

Tony Tanner, who helped start HealthSouth with Scrushy and three other investors in 1984, described Scrushy as the "idea" man behind the rehabilitation and medical services chain.

Tanner retired with health problems in 1999 and repeatedly cited memory lapses for not remembering details. He said Aaron Beam, HealthSouth's first chief financial officer and a government witness against Scrushy, was "the numbers man" among the founders because he was an accountant.
Defense portrays Scrushy as churchgoer Miami Herald (Associated Press) April 28, 2005

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James Goodreau, Givens, Strong, Horton

James Goodreau gave evidence challenging the prosecution witnesses assertion that Scrushy knew of the fraud. He claims that he had lunch with Owen and Owen told him Scrushy did not know. He probably more than any other witness cast doubt on the prosecutions case. He had been employed by the defence. It is worth noting that Goodreau had an axe to grind. HealthSouth's 10-K report to the SEC for 2002 and 2003 reveals that he was involved in a legal dispute with HealthSouth in regard to loans, promises and salaries.

The other witnesses here did not add much but Horton contradicted some of the defence's claims.

HealthSouth Corp.'s former director of corporate security and one-time personal body guard to ousted chief executive Richard Scrushy, testified Wednesday about paranoia among executives as a $2.7 billion corporate fraud mounted.

James Goodreau, who has worked with the Alabama Bureau of Investigation, the Montgomery Police Department and, most recently, the defense in Scrushy's criminal proceedings, testified that at least one co-conspirator in the fraud told him about the company's accounting problems about eight months before the FBI raided its Birmingham headquarters.

William Owens, a former HealthSouth finance chief who has pleaded guilty to his role in the six-year scheme to inflate the company's earnings to meet Wall Street expectations, met Goodreau for lunch August 5, 2002, and discussed the fraud, Goodreau testified.
Goodreau testified he asked Owens if Scrushy was aware of the accounting problems, and Owens said he was not. Goodreau said he replied, "You'd better tell him."

Goodreau said he asked Owens "five or six" times over the next few months if he had discussed the issue with Scrushy, and the CFO said no.

About two months later, Goodreau said he was surprised at a meeting to discuss budget guidance that upset him so severely he called Owens after hours to discuss it. He says they met in the Bruno's parking lot to discuss his concerns.

Goodreau testified that he typically discussed such issues with Kay Morgan alone, but found himself in a "hostile environment" with Owens, Morgan, Tadd McVay, Emory Harris and Weston Smith, all of whom are admitted coconspirators in the fraud.
Goodreau, who was fired by Scrushy the day after the former CEO's assets were frozen, started his own company and has worked for the defense on this case for the last 22 months, averaging $8,400 per month.
C. Sage Givens, a former director and audit committee member whose company was an initial investor in the health-care rehabilitation company, testified Owens' employment became an issue when the company began feeling pressure from an independent Securities and Exchange Commission inquiry.
Former HealthSouth director George Strong followed Givens on the stand and testified he and other board members received the majority of their information from admitted co-conspirators in the fraud such as Owens and some other former CFOs.
Strong characterized the company's string of CFOs as the primary source of information and said the board placed a "great deal of reliance" on the figures they provided.
Bill Horton, HealthSouth's in-house counsel from 1994 until 2003, recalled very few specifics on the witness stand Wednesday. He did testify, however, that the majority of the information he used was supplied by the corporate treasury and accounting personnel.

Horton testified he and then-CFO Malcolm "Tadd" McVay agreed something needed to be done to pacify angry shareholders, but Owens declared his loyalty to Scrushy and refused to participate in Scrushy's removal as chairman of the board.
Smith asked Horton if he would have conducted an investigation had he known a fraud was taking place. He answered, "That's a fair way to put it, I guess."
On redirect, Scrushy lawyer Donald Watkins asked Horton what would be the process of that investigation, and the witness became visibly upset.
Watkins then asked, "What about Bill Owens, Tadd McVay, Mike Martin?" 

Horton replied, "Almost everyone on that laundry list of names you gave me was in some way a friend of mine."
Ex-security chief says HealthSouth execs became paranoid Birmingham Business Journal - May 4, 2005

Portraying Scrushy as out of touch with HealthSouth finances, Goodreau said Owens or another finance official typically briefed Scrushy on company finances as they all flew to investor conferences on a corporate jet.

"He saw the presentation for the first time on the plane," said Goodreau, who came to HealthSouth from the Alabama Department of Public Safety, where he worked as a state trooper, pilot and narcotics agent. Goodreau said he never heard any mention of inflated numbers.
Scrushy sometimes signed his name to signature pages that were later attached to documents filed with the Securities and Exchange Commission without seeing the contents of the reports, Horton said.

But Horton also said Scrushy and finance executives reviewed his drafts of company statements before they were released to the public. Under prosecution questioning, Horton said "nothing of significance happened at the company that Mr. Scrushy didn't approve of." He also disputed defense claims that Owens tried to stage a "coup" to remove Scrushy from the company in 2002 before the fraud came to light.

While the defense has claimed Horton was in a meeting where Owens tried to get Scrushy fired, Horton testified Owens spoke against removing Scrushy, whose actions were drawing complaints from major investors.
Witness: Exec Hid Scheme From Scrushy Washington Post (Associated Press) May 4, 2005

Bowdre, who repeatedly has told lawyers to avoid mentioning other high-profile corporate fraud cases in court, didn't specify what she was talking about.

But moments earlier, Bowdre exploded in anger when the prosecutor kept referring to Enron as he questioned Goodreau about a conversation Goodreau had with former HealthSouth finance chief Bill Owens, whom the defense blames for the fraud.
With that, Bowdre slammed down her gavel for the first time in the trial and screamed "Mr. Wiedis!"

Following a lengthy conference away from jurors, Bowdre said she was sanctioning the prosecution because of Wiedis' questions. As a penalty, she said, government lawyers wouldn't be allowed additional cross-examination of Goodreau.
Scrushy Judge Sanctions Prosecution : Judge Sanctions Prosecution Over 'Enron' Remarks in Scrushy Trial Associated Press May 5. 2005

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Chuck Newhall

Witnesses like Newhall made statements which supported the prosecution's case.

The defense later called former HealthSouth director Chuck Newhall to testify about a failed plan to privatize the company in 2003, but Newhall may have wound up damaging claims that anyone could have hidden the huge conspiracy from Scrushy.
"I consider Richard Scrushy and still do consider Richard Scrushy to be a financial genius," said Newhall. "He knew every detail about what was going on in the company all the time."
Scrushy Judge Sanctions Prosecution : Judge Sanctions Prosecution Over 'Enron' Remarks in Scrushy Trial Associated Press May 5. 2005

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Tim Renjilian

 The defence countered the prosecutions assertion that if it was clear that something was wrong to someone outside the company then Scrushy could not have been ignorant. They produced a witness to show that he could have been unaware of fraud so casting doubt on the claim.

Testifying for the defense in Richard Scrushy's corporate fraud trial Friday, forensic accountant Tim Renjilian held fast to his contention that HealthSouth Corp.'s books were so inherently complex during the span of a six-year fraud that hiding $2.7 billion was not impossible.

Renjilian, whose firm has received $1.2 million to date from the ousted HealthSouth chief executive's defense, testified the sheer number of bank accounts HealthSouth used made actual revenue and assets difficult to trac
After establishing that Renjilian's firm had examined between 1 million and 2 million documents in preparation for Scrushy's trial, Leach asked if the CPA ever found a direct link between the fraud and Scrushy?

"No sir, I haven't," the witness testified.
HealthSouth financial fraud buried in complexity, witness asserts Birmingham Business Journal - May 6, 2005

A defense expert testifying Friday in the trial of Richard Scrushy portrayed HealthSouth Corp. as the perfect place for a huge fraud--a scheme he said the fired CEO had little chance of discovering.

In testimony meant to back up defense claims that Scrushy couldn't have figured out a $2.7 billion earnings overstatement that was hidden by subordinates, forensic accountant Tim Renjilian described a money management system that was staggering in its size and complexity.

HealthSouth had more than 2,500 bank accounts, he said, and the 15 people who have pleaded guilty in the scheme had years of experience in banking and working with outside auditor Ernst & Young, which failed to find the crime.

"You've got a group of folks involved in the fraud ... who I think could have overcome the world's greatest internal controls," said Renjilian.
Scrushy's defense: HealthSouth ripe for fraud Chicago Tribune (Associated Press) May 7, 2005

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 The prosecution and the defence summarised their assertions

Fired HealthSouth Corp. CEO Richard Scrushy was an overbearing "pied piper" who led underlings into a $2.7 billion accounting fraud so he could get fabulously rich, prosecutors told jurors Wednesday.

But the defense countered in closing arguments that Scrushy was betrayed by subordinates, and not a single piece of evidence clearly linked him to the crime. In a folksy drawl, Scrushy lawyer Jim Parkman even called a main prosecution witness "a big rat."

U.S. Attorney Alice Martin, describing Scrushy as a "financial genius" and "master manipulator," said all the evidence pointed toward Scrushy directing the massive earnings overstatement, which took the rehabilitation and medical chain to the edge of bankruptcy
The defense disagreed, claiming subordinates pulled off the systematic accounting scheme and hid it from Scrushy for years. The government "completely botched" the HealthSouth investigation, said Scrushy attorney Art Leach.
Scrushy portraits contrast sharply Jurors hear closing arguments on HealthSouth The Houston Chronicle (Associated Press) May 18, 2005


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The verdict

The complexity of the case, Scrushy's charisma, the open support of their priests and the lack of really solid evidence which could not be challenged must have made this a difficult case for this predominantly black jury. Even in Alabama, most blacks are not close to the corporate world but they are close to their churches. They had to make a decision beyond reasonable doubt and for them that doubt was there so it is difficult to criticise them. The extent to which Scrushy's suddenly increased religiosity became an influence on the jury is not quantifiable. There was almost a hung jury. Their task was daunting.

After months of testimony about complex financial reports and notebooks filled with numbers revealing a huge earnings overstatement, jurors deliberating the case are now faced with a verdict form and legal instructions that, by all appearances, left them confounded.

To reach a verdict on all 36 counts, the jury must fill out a form that includes 247 questions on 37 typed pages. To acquit Scrushy, jurors must make at least 36 unanimous decisions; a conviction on all counts would require at least 69.

That's not all. The judge's charge to jurors -- the legal instructions about how to reach a verdict -- runs another 78 pages.

Experts say much of the information on the forms is required by law, and both prosecutors and the defense helped U.S. District Judge Karon Bowdre decide what to include.
"We need an explanation in layman's terms," said one written plea from the jury foreman.

In another note reminiscent of a love-struck school kid, another juror asked the judge: "Does Count One have to be unanimous? YES OR NO. Please circle 1."

Carroll, now dean of the Cumberland law school at Samford University, said the notes seem to reflect the frustration that can set in when non-lawyers are asked to decipher legal documents and terms.
"Instead, jurors try to establish a sense of equity in terms of what they perceive the outcome ought to be, and then negotiate with one another toward achieving that equity in the form of a verdict," said Anthony, CEO of DecisionQuest in Los Angeles.
Scrushy jury wrestles with complex documents in HealthSouth fraud Associated Press May 30, 2005

The jury wrote multiple notes to the judge requesting guidance and after deliberating for days a juror became ill. When a new juror was appointed they were told to start all over again. Their questions suggest that these are not sophisticated well informed citizens.

"We cannot unanimously agree on a verdict," the jury, made up of seven men and five women, wrote Tuesday afternoon in a note to Judge Karon O. Bowdre, the federal judge overseeing the trial of Mr. Scrushy, the former chief executive of the HealthSouth Corporation, a large chain of rehabilitation hospitals.

"We need an explanation in layman's terms," the note continued. "We would like your explanation in private, if possible."
Tuesday's note was the fourth from jurors since deliberations began on Thursday. On Friday, the jury sent a note to the judge that said: "If we cannot decide unanimously one way or another, what happens?"

 The latest note again raised the possibility of a hung jury in a trial that started in January.
Jury Hints of Impasse on Verdict on Scrushy The New York Times May 25, 2005

Jurors in the criminal trial of Richard Scrushy ended their sixth day of deliberations without a verdict, having earlier in the day told the judge for a third time that they could not reach a unanimous decision on a key conspiracy charge.
Scrushy jurors end sixth day without a verdict Modern Healthcare May 26, 2005

The judge in the criminal trial of Richard Scrushy told jurors to make another effort to reach a verdict, saying that if a substantial majority favored a conviction, members of the minority should reconsider their position. U.S. District Judge Karon Bowdre in Birmingham, Ala., issued her statement after the jury sent a note saying it was unable to reach a unanimous decision on any of the 36 charges being considered against the former HealthSouth Corp. chief. The jury resumed its 10th day of deliberations and subsequently adjourned without a verdict.
Judge orders Scrushy jury to try again for verdict Modern Healthcare June 3, 2005

Now, in a surprise twist, the jury is going to have to start all over again. On Wednesday, the judge replaced an ill juror with an alternate and ordered the members of the jury to destroy their notes and begin mulling the case anew.
"The old jurors are going to resist going back to Square 1, with this trial turning out to be a much longer process than anticipated," said Steven R. Smith, a lawyer in the Chicago office of the firm Bryan Cave and an expert in business litigation. "A lot will depend on how much backbone this new juror has."
"There's no way they can redo 16 days of discussion, but on the other hand they're being told to do that," said Ellen S. Podgor, a professor at Georgia State University College of Law who has followed the case closely. "You can't erase what's already in the jurors' minds, and you can't really bring up to speed the person who is just entering that room."
The new member is a black man whose addition changes the jury configuration to seven black members and five white. Like all the other jurors and alternates in the case, his identity has never been disclosed in open court.
Compared with the printed verdict forms given to jurors in other recent fraud trials of high-profile former chief executives, the 37-page verdict form in Mr. Scrushy's trial is exceedingly complex. For instance, jurors must wade through 50 separate questions in challenging legal language to determine whether Mr. Scrushy is guilty or not guilty of conspiracy - just one of the prosecution's 36 counts.
In the Scrushy case, "jurors aren't all that comfortable understanding this type of conduct as criminal," said Marc D. Powers, a former Securities and Exchange Commission lawyer who is now with the firm of Baker & Hostetler.
Fraud-Trial Jury Is Told to Restart for an Alternate New York Times June 23, 2005 

The sick juror was one of two holding out against acquittal. His replacement clearly had less difficulty as a not guilty verdict followed soon after. Lief Murphy was the HealthSouth executive not charged in the fraud who had directly implicated Scrushy. He was credible and the holdout juror felt this was conclusive.

Willis G. Vest was convinced that Richard M. Scrushy, the former chairman of HealthSouth, broke the law. But he was not surprised on Tuesday morning to receive a phone call from the clerk of the federal court that the jury hearing the conspiracy and fraud case against Mr. Scrushy had acquitted him.

The jury reached its decision without Mr. Vest, who explained in an interview that he was one of two jurors favoring conviction until last Wednesday, when his chronic migraine headaches led the judge to replace him with an alternate juror.

The second holdout, who he declined to name, had stood with him against pressure from the others for acquittal, Mr. Vest said. "There was quite a bit of pressure," he said.
It did not take long for the newly constituted jury to reach a verdict.

Mr. Vest said the most compelling testimony he heard during the trial came from former HealthSouth treasurer, Leif Murphy, who testified that he discovered the fraud in 1998 and quit after a confrontation with Mr. Scrushy. A notebook he prepared at the time depicted the fraud at HealthSouth and was a key piece of evidence for the prosecution.
"My opinion is this verdict is wrong, but I'm only one of the bunch," Mr. Vest said in an interview from his bed at his home in Helena, a Birmingham suburb. "I mean, when you get people together you get various opinions."
Determined to Find Guilt, but Expecting Acquittal The New York Times June 29, 2005

Not unexpectedly many were surprised at the verdict. A very few were not.

Healthcare industry executives said they were stunned by today's acquittal in the criminal trial of Richard Scrushy, founder and former chief executive officer of Birmingham, Ala.-based HealthSouth Corp.

All five of the company's chief financial officers and about 10 other executives under Scrushy-who faced 36 counts-testified that he directed subordinates to overstate HealthSouth's revenue to meet Wall Street expectations. Still, that wasn't enough to convince a jury in U.S. District Court, Birmingham, that Scrushy, 52, knew the company's income was inflated by some $2.6 billion. Jurors deliberated 21 days before announcing the verdict.
The earnings restatement makes the verdict even more difficult to understand, said Robert Broadway, vice president of corporate strategy for Boynton Beach, Fla.-based Bethesda Healthcare System. "There might be a little injustice," he said.

Others also expressed surprise.

There were five CFOs who pleaded guilty, but "somehow the CEO didn't know about it . . . That doesn't add up," said David Gilbert, vice president of business development for Creditek, a Parsippany, N.J., outsourcing company.
William Maruca, a partner with the law firm Fox Rothschild said the acquittal is "a tremendous defeat for Sarbanes-Oxley. With a case and facts like this, I wonder if it suggests that the law itself is deficient."
Lawyers said the government will be criticized for not seeking to move the case outside of Birmingham, where Scrushy is a well-known businessman and philanthropist; he also had connections to the presiding judge, Karon Bowdre.

Scrushy played the "local card" brilliantly and hired good attorneys who knew their environment said Patrick Coffey, a healthcare lawyer with the Chicago office of Gardner, Carton & Douglas. Scrushy also used Alabama lawyer Jim Parkman as his lead attorney. Coffey added that the case marks a "huge failure for government enforcement efforts in healthcare."
Healthcare execs shocked by Scrushy not-guilty verdict Modern Healthcare Jun 28, 2005

It is an extraordinary end to what was supposed to be among the government's most compelling cases against a chief executive, with more than a dozen former HealthSouth executives testifying against him. He was accused of directing his subordinates to inflate the company's profits and thus attract investors to its stock.
"God is good," he (Scrushy) said. "Jesus taught us how to love each other. We've got to have compassion, folks, because you don't know who's going to be attacked next."
"I'm absolutely stunned," said Steven Smith, a partner in the Chicago office of Bryan Cave and a business litigator. "There was so much evidence the government brought in this case; I'm just shocked that the jury didn't find him guilty of something."
Among the legal analysts who had predicted Scrushy's acquittal was Ellen S. Podgor, a professor at the Georgia State University College of Law who has followed the case closely and kept a blog on its developments. She said that holding the trial in Mr. Scrushy's hometown was a misstep and that having dozens of people testify on dozens of charges was overkill. "It sounded like they were throwing spaghetti at the wall and hoping something would stick."
In Alabama today, callers to an influential radio talk show were "absolutely shocked and dismayed," said its host, Paul Finebaum, a former friend of Mr. Scrushy and now a critic. "I've heard the O.J. verdict mentioned early and often," he said in a break about three hours into the four-hour program. "I think the consensus of most people is he played the race card, and he played the religion card."

"The caller reaction has been overwhelmingly against the verdict," he added. "There's just almost a consensus feeling of no faith in the jury system, but again, these are people who are watching this unfold on television."
HealthSouth Founder Acquitted of All Counts of Corporate Fraud The New York Times June 28, 2005

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The prosecution did not appeal the case and accepted the verdict.  Acquittal in the criminal case did not restore Scrushy's reputation and there were still a large number of civil actions pending. He also faced a charge of bribery and this time a jury convicted him. HealthSouth did not want him back.

After a federal jury acquitted him yesterday on charges of directing a $2.7 billion accounting fraud at HealthSouth, Mr. Scrushy insisted, through a spokesman, that he expected the company to "honor his contract" and restore all the perquisites that were "taken from him by virtue of his illegal termination."

Not a chance, said Robert May, chairman of the HealthSouth board. "Under no circumstances will Mr. Scrushy be offered any position within the company by this management team or by this board of directors," Mr. May said in a statement issued shortly after the jury announced its verdict.

Mr. Scrushy still has a seat on the company's board and is one of its biggest
A Trial Ends, but the Tribulations and Hard Feelings at Headquarters Don't Abate The New York Times June 29, 2005

Many have said the government erred by not trying to move the case out of Birmingham -- where Scrushy is a well-known businessman, philanthropist and churchgoer. In future cases, prosecutors will also try to include jurors who have a finance background. Requesting to move the venue to a city such as New York, a major finance capital, could have provided both of these benefits for the prosecution, lawyers said.
 Despite the acquittal, Anning said, the case would still be a deterrent to stopping executives from conducting fraud because Scrushy was forced to spend millions on his legal team and still faces several lawsuits that stem from the fraud. There was a sign, however, that the acquittal could weaken the argument in lawsuits against Scrushy.
The aftermath : Scrushy acquittal leaves blemish on the entire healthcare industry, experts say Modern Healthcare July 7, 2005

The government on Wednesday dropped plans to retry Richard Scrushy, saying it would not appeal a judge's decision to dismiss perjury charges against the fired HealthSouth Corp. chief executive, who was acquitted of directing a $2.7 billion fraud.
Scrushy is still named in dozens of civil lawsuits.
HEALTHSOUTH CORP.: U.S. won't retry Ex-CEO Scrushy The Chicago Tribune (Associated Press) July 14, 2005


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 Other Court actions against Scrushy

 The criminal trial described here was only one of several in which Scrushy and HealthSouth were involved.

Scrushy was later tried and convicted for bribing the governor of Alabama. He was the subject of lawsuits from HealthSouth, the Securities and Exchange Commission, from shareholders, and from whistleblowers regarding Medicare fraud among others.

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In February 2007 Ben Hallman wrote a a long article for American Lawyer analysing and comparing the fraud and bribery cases to see why Scrushy got off in one and not the other. The implications for what were then upcoming actions against Scrushy by the SEC and by shareholders were discussed.

Hallman had interviewed several of the participants in the case. It is so interesting that I take the liberty of reproducing quite a large section from the material on the fraud case as it throws more light on the case. The interesting thing is that in this analysis the fact that Scrushy may have been guilty or innocent was not part of the discussion - the hidden assumption seems to be that he probably was. They are talking about how the lawyers got him off or failed to do so.

 Watkins helped engineer Scrushy's surprising victory a year and a half ago on charges that he defrauded investors in HealthSouth Corporation, a national chain of rehabilitation clinics. Watkins saw his standing in Birmingham plummet after the win. As one former city official puts it: "Many people think he's a tainted commodity." (For his part, Watkins says he's simply pursuing business interests in Florida.)
The problem for Scrushy is that his trial team's winning formula has only worked once. In a separate criminal case completed last summer, Scrushy was convicted of bribing former Alabama governor Don Siegelman for a seat on a state board that controls hospital expansion.

Defense lawyers and prosecutors, many speaking at length about the trials for the first time, say that much about the last five years in Scrushy's legal life has been misunderstood. In the standard telling of the first Scrushy trial, the defense win comes down to race and the home field advantage he supposedly enjoyed. Without a doubt, the team ran an effective media blitz to mobilize support among African Americans in a majority black city. But Scrushy's side also won because of prosecution missteps, sympathetic rulings from the bench (too sympathetic in the view of several lawyers involved in the case), and a defense team that understood every nuance of appearing before a jury in Birmingham. His lawyers presented a cohesive, charming courtroom front-even though behind the scenes the defense had been roiled by disagreements over strategy and defections.

Scrushy's lawyers in the second trial, this one held in Montgomery, tried many of the same tactics that their colleagues employed successfully in 2005, but also adopted some of their adversaries' bad habits, the lawyers say. Scrushy's lawyers lost their cool in the courtroom. They often appeared rudderless, and allowed the other side to dictate the pace of action. And they made comparisons between Scrushy and Martin Luther King, Jr., that even one of their colleagues calls over the top. At the same time, a new team of prosecutors were on their game, and a different judge gave the defense far less leeway.
For the lawyers arguing these cases (the SEC and shareholder cases), the outcomes may hinge on what lessons they learned from the first two trials. Watkins, for one, thinks these lessons have been largely ignored. A tall man with a cultured Southern accent, Watkins is persuasive, with a knack for framing questions to appeal to his audience. "Of 83 CEOs charged with securities fraud [since 2002], all were convicted except one, Richard Scrushy. What you want to know is how it was done." He leans forward. "Right?"
Birmingham was turning against Scrushy. The most enduring image from the days that followed HealthSouth's financial meltdown was a photo of a bronze statue of Scrushy on the HealthSouth campus. Someone painted "THIEF" in big letters from neck to knee. HealthSouth officials ordered it removed after a local radio host exhorted his listeners to pull it down like the statue of Saddam Hussein in Baghdad.

Scrushy's newly hired legal team began its work by trying to rehabilitate his image in Birmingham. Before and during the six-month trial, Scrushy toured the African American community, making hefty donations to churches (several black pastors were regular guests in the courtroom). He hosted a religious-themed morning show called Viewpoint , and was seen in the company of prominent black citizens, most notably former mayor Richard Arrington. Arrington, Birmingham's first black mayor, was a still-popular figure in the African American community and had spent his last years in office facing down a criminal investigation of his own (formal charges were never filed against Arrington). It was Arrington who urged Watkins, his lawyer during that period, to represent Scrushy.

Watkins, who helped engineer the PR blitz, says the appeal to the local community was more than just one of race. After all, five white jurors agreed to acquit Scrushy. Instead, Watkins sold Scrushy to Birmingham as one of them, a pious, local boy facing the same kind of government persecution as their beloved former mayor, who, by the way, just happened to be Scrushy's personal friend. The distinction between community- and race-based appeals would later be lost on Scrushy and his legal team-with disastrous consequences in the Siegelman bribery trial.

Not everyone loved the community-based strategy. Scrushy's legal team was in frequent turmoil before the trial. Though Watkins was a constant, the revolving defense cast included former White House special counsel Lanny Davis, then at Patton Boggs and now a partner at Orrick, Herrington & Sutcliffe; Jones Day partner Jonathan Rose; and Chadbourne & Parke's Abbe Lowell.

Lowell's departure, in particular, three months before the trial began, seemed to spell disaster. Lowell declined to comment, but lawyers familiar with the case say he objected to what he saw as an overly aggressive campaign to curry favor with the local community, and to Watkins's incessant criticism of government lawyers. Chadbourne, in a statement, says it was a mutual decision. Watkins says Lowell left when he learned that James Parkman III, a small-town lawyer whose chief qualification seemed to be that he was a law partner of Scrushy's brother-in-law, would be taking over as lead counsel. "I didn't think we could win with his 'textbook' trial strategy, and a New York-style courtroom presentation," Watkins says. "His law firm withdrew because they did not want nationally known Abbe riding the bench in the shadows of little-known Jim Parkman." Scrushy also brought aboard Arthur Leach, a former federal prosecutor from Atlanta, to round out the trial team.

Playing it local-or at least with a strong southern flavor-stood in contrast to the prosecution. Despite the pretrial problems, Watkins says part of his "system" for winning was appearing at home in the courthouse. The defense team daily held a veritable love-in at its table-Watkins, Parkman, and Leach hugged, joked, and chatted up everyone from the court reporter to the janitor. "You don't want to come off as a stranger or an unwelcome guest," Watkins says.

Prosecutors, on the other hand, seemed at times to have a frosty relationship, lawyers who were in the courtroom say, which may have stemmed from tensions between local and Washington, D.C., prosecutors, who had come to Alabama to assist the small local office. "They were missing a captain of the ship," says J. Douglas Jones, a former U.S. attorney in Birmingham now at plaintiffs firm Whatley Drake & Kallas. "Department of Justice investigators were trying to coordinate and direct the U.S. attorney. It was the makings of a disaster." In an exchange via e-mail, Alice Martin disputed this characterization. "We were a team, and we performed as a team." Smith and Richard Wiedis, another prosecutor, declined to comment on internal dynamics of the prosecution team.

Another no-no: openly fighting with federal judge Karon Bowdre. "I've tried lots of cases and have never seen such bad chemistry between one side and the judge," says Michael Madigan, a partner at Akin Gump Strauss Hauer & Feld who represented several of the directors on HealthSouth's board. Manners matter in Alabama. Louis Franklin, Sr., a veteran prosecutor who tried

the second case as acting U.S. attorney for the Middle District of Alabama, recalls meeting one of the Justice lawyers in the fraud case-he won't say who-who bragged about fighting with Bowdre. "I remember thinking: 'Dude, you don't do that.' "

Prosecutors were angry that Bowdre was allowing the defense to attack the character of government witnesses. One former CFO using antidepressants was on "mind-altering drugs," according to the defense. The defense was also allowed to refer to another CFO's extramarital affair. Bowdre held nightly hearings to determine whether to allow hearsay testimony from one conspirator about another, though prosecutors contend a conspiracy at HealthSouth had long been established. The hearings gave the defense a preview of upcoming testimony, Smith says. Government lawyers were also furious that Bowdre didn't gag the defense, which was holding press conferences on the courthouse steps. "Disagreements we had in private made it to the press that afternoon," Smith says.

If the prosecution suffered at the hands of Bowdre, the defense prospered. Parkman, in particular, was allowed to get away with theatrics that other judges would clamp down on, say local attorneys-in his closing, for example, he brought in a large picture of a rat, which he compared to the CFOs. "It was a Judge Ito situation," says one local attorney, not the first O.J. Simpson analogy made by lawyers interviewed about the case. "The defense ran the courtroom."

Madigan says Bowdre, who acknowledged publicly that she was a neophyte in criminal law when she was assigned the case, appeared throughout "woefully inexperienced and unsure of herself, particularly in regard to evidentiary rulings." Bowdre did not respond to requests to comment, but she has supporters, too. "Any losing side will complain about the court," Jones says. "In my view, the government lost the respect of the judge." He says government prosecutors are to blame for Scrushy's acquittal: "The prosecutors fundamentally misunderstood the defense. This was a street brawl."

Prosecutors had another problem: their indictment. They had charged Scrushy with 85 counts that covered ten crimes, including mail fraud, money laundering, and conspiracy. The kitchen sink approach would backfire. They had made too many complicated charges and couldn't "simplify it, make it palatable to the jury," Madigan says. Testimony was complicated, too, and the CFOs droned on for far too long. As one lawyer connected with the case puts it: "Nobody in the South likes a snitch. Get them on the stand and get them off as fast as possible."

That problem seemed clear in posttrial interviews with jurors. They strongly questioned the credibility of the five former CFOs. Of course, defense attacks had also worked. Watkins says the defense worked to "crush" these government witnesses. They were helped by the light sentences that U.S. district court judge U.W. Clemon had meted out to three of the CFOs, suggesting that prosecutors had given the former CFOs sweetheart deals in order to testify. In his closing argument, Watkins exhorted the jury to send a message. "They are watching. The folks up in D.C., the big shots, the ones who call the plays, who make decisions for the group here, I am talking about the bourbon-sipping, martini-drinking, cigar-smoking crowd. . . . You tell my government no more getting on your knees when they come in without a fight, surrendering, hands up, waving the white flag."
Pushing His Luck; Feature; Lawyers hit upon a winning formula in Richard Scrushy's; first criminal trial. But when they tried the same tactics; in a second trial, they lost. What happened? American Lawyer Volume Vol. 29, No. 2; Issue February 1, 2007



In 2009, six years after the exposure of the fraud in 2003 Richard Scrushy was found guilty of masterminding the fraud. He was brought from goal where he was serving a sentence for bribery. He was tried in a civil case before a judge and without a jury. The action was brought by HealthSouth shareholders.

Scrushy, acquitted in 2005 on criminal charges of directing an accounting fraud, was found liable for $2.876 billion in a civil trial in Birmingham, Alabama.

"Scrushy knew of and actively participated in the fraud," state court Judge Allwin E. Horn said in his ruling today. After a two-week trial, Horn ruled in favor of investors who brought the suit on behalf of the company.

"Scrushy was the CEO of the fraud," Horn said in his ruling. The judge decided the case without a jury.
The judge's ruling invalidates Scrushy's employment contracts with HealthSouth, including his pension. John Somerville, an attorney for the plaintiffs, estimated that Scrushy's pension could have totaled more than $200 million over his lifetime.

Somerville said in an interview in front of the courthouse that he didn't know Scrushy's current net worth. He estimated that he earned more than $200 million in one five-year span at HealthSouth. Estimates during Scrushy's federal criminal trial put his worth at about $275 million, Somerville said.

"We think he still has significant money," Somerville said. He said Scrushy's assets would not approach the amount of the judgment.
The plaintiffs can also go after Scrushy's future wages once he is released from prison on a separate bribery conviction, including garnishing his salary.

"We will collect every penny we can," said Somerville.
In the current case, shareholders suing on behalf of Birmingham-based HealthSouth sought $2.6 billion in damages. They said Scrushy wrongly used company money for personal expenses, including real-estate purchases and 400 flights to his lake house on a company helicopter.
The shareholders had to prove their case by a "preponderance of the evidence," a lower standard than the "proof beyond a reasonable doubt" prosecutors faced in the criminal case.

The case is Tucker v. Scrushy, CV 02-5212, Jefferson County Circuit Court of Alabama (Birmingham).
HealthSouth's Scrushy Liable in $2.88 Billion Fraud (Update3) Bloomberg June 18, 2009


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This page first created Oct 2007 by
Michael Wynne
Update June 2009