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Former HealthSouth CEO Indicted

Nov 4, 2003 | Washington Post

Federal prosecutors today charged former HealthSouth Corp. chief executive Richard M. Scrushy with directing a $2.7 billion fraud designed to boost the company's stock price and enrich himself and accomplices.

The 85-count indictment, rife with dozens of fraud, conspiracy, and money laundering charges, was handed up by a Birmingham, Ala., grand jury last week and unsealed today. Scrushy surrendered to the FBI early this morning and is due to appear in court later this afternoon.

The government is seeking to recover $278.8 million in allegedly illegal gains that Scrushy reaped from 1996 to 2002, including waterfront property, a 92-foot yacht named "Chez Soiree," a Cessna aircraft, a Lamborghini sports car, four pieces of diamond jewelry, and paintings by Picasso, Renoir, and Miro.

Scrushy, 51, is the first corporate leader to be charged under the Sarbanes-Oxley Act, last year's landmark congressional legislation designed to crack down on corporate abuses. He vouched under oath for the company's financial statements filed with the Securities and Exchange Commission and lied in annual reports to investors, in letters to outside auditors, and in conference calls with employees, prosecutors allege.

"Today we send two messages to the investing public," Alice H. Martin, U.S. Attorney in Birmingham, said at a Washington news conference. "There's only one rule of law and it applies to everyone. The second message is, corporate fraud does not pay and where it has apparently paid, we will seek disgorgement of all ill-gotten gains."

Scrushy's lawyers were not available for comment this morning, but they have previously said their client will be vindicated and that lower-level workers were responsible for the accounting fraud.

The investigation dates back to March, when investigators raided the company's headquarters and the Securities and Exchange Commission filed civil fraud charges against both HealthSouth and Scrushy. Scrushy was placed on administrative leave and later was dismissed. Fifteen former executives pleaded guilty to taking part in the fraud, including all five of the company's chief financial officers.

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