SEC Files Insider Trading Charges Against Former HealthSouth Chief

Richard Scrushy, former head of HealthSouth Corp., joins his two former chief financial officers, William Owens and Weston Smith, in facing insider trading charges, initiated by the Securities and Exchange Commission (SEC). Scrushy’s legal problems might not end there as eight of his former employees who have admitted to fraud and conspiracy could point the finger at Scrushy, fueling an ongoing Department of Justice criminal investigation.

SEC enforcement attorney Bill Hicks filed the civil suit Thursday in Birmingham, Alabama, federal court, alleging that Scrushy profited from a plot to falsely inflate company profits. The SEC suit claims Scrushy made more than $170 million since 1991 by selling 13,823,000 shares of HealthSouth stock, "while in possession of material, non-public information concerning the inaccuracies of HRC's financial statements."

The SEC’s civil suit seeks up to $743 million from Scrushy, which includes paying back profits earned fraudulently, as well as civil penalties and interest. Defendants in insider trading cases may have to return profits or losses they avoided through insider knowledge, and can have to pay a civil penalty up three times that amount plus interest. Scrushy was not available for comment on the SEC’s suit and he has reportedly decided to retain new counsel, releasing his former attorneys Mark White and William Clark from the case.

Scrushy was removed from his post as chief executive of HealthSouth, the country’s leading operator of outpatient surgery centers and physical therapy clinics. The SEC had already filed charges against Scrushy and the company claiming that he had inflated earnings by $1.4 billion since 1999 and overreported the value of other assets by $800 million. This number stretched to more than $1 billion when five additional HealthSouth employees pled guilty last week to criminal fraud and conspiracy charges, admitting to participating in the overreporting of earnings by some $2.5 billion. The new suit amends the first filing.

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