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Former HealthSouth CEO and founder Richard Scrushy was found not guilty on 36 charges of fraud, false corporate reporting and making false statements related to the $2.7 billion accounting fraud at HealthSouth.
Today's acquittal ended a four-month trial and three weeks of deliberations. Richard Scrushy was found not guilty of directing an accounting fraud at HealthSouth, a chain of rehabilitation hospitals he founded 20 years ago.
Fifteen former executives have pleaded guilty for their part in the fraud, including five former chief financial officers who testified against Scrushy during the trial. Scrushy was the first CEO charged under the Sarbanes-Oxley Act, the 2002 law requiring CEO's and chief financial officers to certify the accuracy of their company's financial filings.
Here to discuss the trial and verdict is David Voreacos of Bloomberg News who covered the trial in Birmingham.
And, David, welcome to you. First, could you give us a quick reminder of what this case was about and what Mr. Scrushy was charged with.
The Justice Department accused Richard Scrushy of directing this seven-year fraud that inflated profit from 1996 to 2002. Essentially what the government accused Scrushy of doing was inflating HealthSouth's shares and profits so that it would enrich himself and meet the expectations of Wall Street analysts.
A number of executives, as you said, pleaded guilty and testified against him, and the government said that he conspired with those executives, and that he laundered the profits that he got from the fraud through inflated bonuses and stock options that he cashed.
And the defense case was basically that all of this had occurred but had been done by underlings?
The defense conceded that there was a fraud at HealthSouth, but they said that the executives who testified against them all lied for their own selfish motives. Essentially, they're saying that Scrushy, while he was a very bright financial man, and was even described as a financial genius, did not know the details of this fraud that was carried on by what a defense attorney characterized as "rats in the accounting department."
And they also contended that the people in the accounting department and the treasury department who carried out the fraud concealed it from the company's lawyers and auditors, and so it's quite believable that Scrushy himself did not know about it because those who executed the fraud did so while concealing it from him.
Now, everything I'd read suggested that the experts thought this was a pretty strong case, especially since you had so many of these underlings pleading guilty and testifying against Mr. Scrushy. So how did prosecutors react today? Were they surprised?
Going into the trial, the Justice Department believed they had, in fact, a very powerful case, compared to other accounting fraud trials in the last year or so. There were none that had five chief financial officers who could say, "I directly discussed cooking the books with the chief executive."
In this case they also had a secretly recorded tape — or series of tapes that one of the finance chiefs, William Owens, made for the FBI in March of 2003 just before the FBI raided HealthSouth headquarters.
So they believed — and after the verdict today, U.S. Attorney Alice Martin, who is the local lead federal prosecutor, was very disappointed. She expressed her disappointment and she thought, as they've expressed throughout the trial, that they had a very powerful case.
They will appeal — during the trial, Judge Karon Bowdre dismissed three perjury counts and an obstruction of justice count which is pending in the appeals court in Atlanta, and they say that if the appeals court reinstates those counts, they want to retry Scrushy on those four counts.
Now, Mr. Scrushy had been a very high-profile corporate executive there in Birmingham, and I understand that even during the trial, he continued very publicly in the community to make his case with his philanthropic works. Tell us about that.
Scrushy is a local celebrity who has given more than $20 million in philanthropic causes. His name is on buildings, streets. He's given to a number of charitable causes.
About two years ago, or just before he was indicted in September 2003, he joined a predominantly black church, and he's given more than $1 million to that church. And in the past few months, he has preached at a number of churches in the Birmingham area. He also hosts a local cable television show in which he discussed his Christian faith and the Bible with pastors from the area.
So he's not been bashful about being out in public. And in the past month or so, he's also gone out in the courthouse steps to personally discuss the evidence against him and to try to tell people how wanting the government's case was.
And, David, finally and briefly, I mentioned this was the first case brought under the Sarbanes-Oxley Law, and, therefore, I know it was watched quite closely by legal experts. Were you able to get any quick reaction to today's verdict?
I think a number of lawyers who had been following the case were quite surprised at the outcome because they just understood that going in the government had such a strong case.
But people who were actually able to watch the trial understood that the defense attorneys were able to score a number of points with the government's primary witnesses and undermine their credibility. I do think there's a considerable surprise around the country from securities lawyers who thought that this was about as good a case as the Justice Department was going to put together.
All right. David Voreacos of Bloomberg News, thanks very much.
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