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Former HealthSouth Chief Indicted

Nov 4, 2003 | Richard Scrushy became the latest high-profile target of white-collar criminal prosecutors on Tuesday, being hit with an 85-count indictment over a $2.7bn fraud at the US healthcare company he founded.

Mr Scrushy, who was chairman of HealthSouth from 1984 until earlier this year, has maintained his innocence while a growing number of his former employees have entered guilty pleas and the scale of the alleged wrongdoing has mounted.

Tuesday's indictment alleges that he had continued his famously flamboyant lifestyle even as prosecutors closed in he spent $3.2m on a Cessna aircraft at the end of July.

The Department of Justice wants Mr Scrushy to forfeit the Cessna and about $275m-worth of other property it alleges was bought with the proceeds of illegal activity. If Mr Scrushy were to lose the case he could forfeit a new Lamborghini Murcielago, hundreds of acres of property and paintings by Renoir, Picasso and Miro.

Under Mr Scrushy, HealthSouth grew rapidly to be one of the US's largest operators of health clinics.

The chairman, who was also chief executive for all but a few recent months, became famous for lavish events, philanthropy, and for making favoured employees wealthy.

But HealthSouth's success, it is alleged, was founded on a seven-year scheme of massive fraud designed to portray the company's financial statements in an illegally optimistic light. The improved earnings outlook, the indictment says, helped keep the share price up and trigger great share and salary awards for some employees.

About 16 people have been charged with crimes at the company since March. Fourteen have entered guilty pleas, including five former chief financial officers. The company itself is fighting to stave off bankruptcy, and could yet be indicted by the Department of Justice, though that prospect seems to be receding.

Christopher Wray, assistant attorney-general, said yesterday: "[Mr] Scrushy and his accomplices lied they cooked HealthSouth's books and Scrushy personally vouched for false financial statements to cover up their scheme."

Among the alleged criminal acts, Mr Scrushy has become the first chief executive to be accused of incorrectly certifying the accuracy of his company's financial statements.

The new crime, enacted in last year's sweeping Sarbanes-Oxley Act on corporate governance, severely restricts the ability of corporate chiefs to plead ignorance and blame subordinates for wrongdoing.

Mr Scrushy, the indictment says, "would and did seek to control his co-conspirators, HealthSouth employees and the board of directors". He is alleged to have used threats, intimidation and pay-offs. Mr Wray said Mr Scrushy tapped the phones of employees.

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