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Prosecutors May Expand Fraud Investigation of Scrushy

May 15, 2003 | Atlanta Journal Constitution

U.S. prosecutors have expanded their fraud investigation of HealthSouth's fired chief executive officer, Richard Scrushy, to include possible money laundering and racketeering, an FBI spokesman told Bloomberg News.

While Scrushy has not been charged with a crime, a grand jury is considering the case. Scrushy's lawyers have said they expect him to be indicted.

The government has accused HealthSouth and Scrushy of overstating earnings by some $2.5 billion since 1997 to meet Wall Street expectations.

The company is cooperating with investigators, while Scrushy has denied any involvement in the fraud. Eleven former executives have pleaded guilty, including all five of HealthSouth's one-time chief financial officers.

Bloomberg quoted an investigator as saying they are now looking beyond the initial allegations raised by the 11.

"We're looking at what we believe will be shown to be illegal activity, and it's generally fraud," said Craig Dahle, a spokesman for the FBI's Birmingham office.

He told Bloomberg: "Money laundering and racketeering are not out of the question, but it's far from known at this point. You have a multitude of violations that may be applicable here, as in any white-collar case."

Scrushy has denied wrongdoing and blamed the fraud on the 11 who pleaded guilty.

The possibility of money-laundering and racketeering charges arose in a prosecutor's letter attached to a motion filed by Scrushy's lawyers in federal court in Birmingham, according to Bloomberg.

The lawyers want to head off a second attempt to freeze Scrushy's assets.

Court documents filed Wednesday show the Justice Department is planning to pursue a civil forfeiture, a tactic the government can use to condemn property it believes was linked to illegal activity.

U.S. District Judge Inge Johnson last week refused an attempt by the Securities and Exchange Commission to freeze Scrushy's assets. The SEC filed suit in March accusing Scrushy and the company of overstating earnings to meet Wall Street expectations.

U.S. District Judge Inge Johnson last week refused an attempt by the Securities and Exchange Commission to freeze Scrushy's assets.

In other news: HealthSouth Corp. said Thursday it was cutting 80 more office jobs and paring its aircraft fleet to save money.

HealthSouth, which previously slashed 250 positions, said it would eliminate about 80 non-clinical corporate jobs. The move will leave the company with about 49,000 employees, down from around 51,000.

In a statement, HealthSouth said it had positive cash flow and its patient volume and referral rates were "strong."

To cut the size of its fleet of 11 aircraft, HealthSouth said it had reached an agreement with GE Capital, which leased a Gulfstream V jet to the company. GE Capital sued HealthSouth last month seeking the return of the plane plus more than $9 million in missed payments.

The terms of the settlement weren't disclosed. HealthSouth, which sold another jet in December, said it was trying to get rid of seven more planes it either owns or leases.

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