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Scrushy Freeze May Hold On Appeal

May 4, 2003 | Birmingham News

The Securities and Exchange Commission, should it lose its bid this week to keep Richard Scrushy's financial assets frozen, wants the ex-HealthSouth chief's money to remain off-limits while it appeals the decision.

Scrushy's lawyers counter that doing so would be the equivalent of his winning the battle but losing the war, because such action would deprive Scrushy of cash when he most needs a substantial legal defense.

Court papers indicate the unusually lengthy battle over Scrushy's asset freeze is likely to go even longer after U.S. District Judge Inge Johnson decides whether any or all of Scrushy's assets will remain frozen. Johnson, after an 11-day hearing, is expected to issue a ruling this week.

The SEC, preparing for all possible outcomes, said in a Thursday document that it presented sufficient evidence to show that "Scrushy orchestrated one of the largest financial frauds in American history, causing investors billions of dollars in losses."

The agency, however, asks Johnson, should she lift the freeze, to continue it pending the outcome of an appeal to the 11th U.S. Circuit Court of Appeals.

SEC lawyers said it "is attempting to preserve the status quo" so Scrushy's assets will be available to pay any eventual judgment and provide at least partial compensation to defrauded investors.

The SEC said Scrushy's assets appear to be about $150 million, far less than the SEC's claim in its civil lawsuit of $786 million, plus interest.

The SEC said it needs the continued freeze to protect the public interest and block the possibility of a wire transfer because a large portion of Scrushy's known assets are liquid and could be wired overseas in a matter of minutes.

Scrushy's lawyers, however, argue that the government, by asking for relief from a decision that hasn't even been made, must be expecting to lose this part of the case.

In their filing Friday, the lawyers also repeated assertions that Scrushy is not a flight risk and "there has been no evidence whatever that Mr. Scrushy, an upstanding and well established member of the Birmingham business community, would even attempt to wire money abroad. Indeed, there has been no evidence introduced that he has a foreign account of any type."

An SEC appeal could take "several months or more," and if the freeze is extended throughout the appeal, "they will have completely achieved their objective of preventing him from maintaining an adequate defense," Scrushy's lawyers wrote.

"In his personal Vietnam, Mr. Scrushy would have won all of the battles but lost the war," they wrote.

The SEC's actions in the HealthSouth case are part of a recent trend in prosecuting corporate wrongdoing. The federal government, emboldened by a new law to help root out corporate criminals, has become increasingly aggressive in trying to preserve funds that it says were obtained by fraud or misdeed. Similar moves have been made in the cases involving Adelphia Communications Corp. and WorldCom.

Scrushy's assets were frozen shortly after the SEC filed a lawsuit March 19, accusing Scrushy of being the ringleader in a scheme to inflate HealthSouth's earnings by $2.5 billion. Johnson has allowed about $15 million of Scrushy's taxes and some legal and business expenses to be paid.


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