Criminal Indictment Handed Up in HealthSouth CEO Case

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Conspiracy, securities fraud, wire fraud, mail fraud, making false statements, providing false certifications and money laundering are the charges former HealthSouth Corp.'s chairman and chief executive Richard M. Scrushy will face. The charges carry a possible sentence of 600 years in prison.

An indictment was handed up by a grand jury in Birmingham, AL, last week and unsealed yesterday by the U.S. Department of Justice, charging Scrushy with the counts above in the accounting fraud at the health care company he founded. Scrushy surrendered to FBI officials yesterday.

The indictment further directed him to hand over $278.7 million in assets that include homes, a yacht, aircraft, jewelry and a Lamborghini, to name a few, The New York Times reported.

Scrushy, 51, pled not guilty last week and he is now confined to Alabama and must forfeit his passport. The Justice Department has requested he be required to wear a monitoring device and a ruling is expected shortly on his bond. Fifteen former HealthSouth executives have already pled guilty to charges they participated in the effort to overstate the company's earnings and that they committed $3 billion in accounting fraud. HealthSouth is the country's leading operator of outpatient surgery centers and physical therapy clinics

Scrushy's defense attorney promised a fight. "We will prove his innocence," Donald V. Watkins, a lawyer for Scrushy said. "We expect that this is going to be a serious trial."

Prosecutors also promised to fight hard at what will be the first trial of a chief executive under the 2002 Sarbanes-Oxley corporate clean-up law. "As alleged, instead of telling the public the truth, Richard Scrushy and his accomplices lied—they cooked HealthSouth's books and Scrushy personally vouched for false financial statements with the SEC to cover up their scheme," said U.S. Assistant Attorney General Christopher Wray. "These charges show that the government has important new tools to hold executives accountable for corporate fraud, and we won't hesitate to use them where the evidence warrants it."

The Securities and Exchange Commission filed a civil suit against Scrushy in April, alleging that he 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.


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