Judge orders Scrushy to pay $2.8B to shareholders

[June 18, 2009]  BIRMINGHAM, Ala. (AP) -- A state judge on Thursday ordered former HealthSouth CEO Richard Scrushy to pay about $2.8 billion to shareholders who sued over accounting fraud at the rehabilitation chain.

Circuit Judge Allwin E. Horn, who heard the case without a jury, ruled in favor of HealthSouth shareholders who filed a civil suit claiming Scrushy was involved in a massive fraud that nearly sent the company into bankruptcy.

Scrushy was acquitted in a federal criminal case over related charges and testified in the state civil suit that he knew nothing about any fraud. He is serving a nearly seven-year sentence for a 2006 conviction in a separate state government bribery case.

The Alabama suit accused Scrushy of unethical dealings with the company while it was going broke and complicity in $2.6 billion in fraudulent earnings and asset reports it filed with regulators from 1996 to 2002. The amount shareholders sought included money they claimed he pocketed through sweetheart deals.

Scrushy, who testified publicly for the first time concerning the alleged fraud during the trial last month, denied getting millions from the company in improper deals or having any role in a scheme to cook the books.

"I had no knowledge of any financial fraud at HealthSouth," he testified.

While Scrushy was acquitted of criminal charges in federal court in 2005, 15 former HealthSouth executives pleaded guilty and a 16th was convicted. Some testified in the civil case, claiming Scrushy knew that financial reports were faked.

During the lawsuit trial, an attorney for shareholders, John W. Haley, repeatedly confronted Scrushy over what Haley described as obvious conflicts of interest. Among them was HealthSouth's purchase of 19 acres of land next to Scrushy's suburban Birmingham estate for $1.9 million, then giving him the land three years later. Scrushy said he got the land instead of a bonus one year.

Haley, sounding incredulous, recounted how Scrushy took an $82 investment in a company that purchased property at a discount from HealthSouth and turned it into a personal profit of some $12 million in four years by leasing the property back to the corporation.

"That's the way it works in America," Scrushy said.

Haley also claimed Scrushy received $226 million in compensation over seven years while HealthSouth was losing $1.8 billion, but Scrushy disputed the numbers.

Five former HealthSouth finance chiefs gave testimony implicating Scrushy in a scheme to fraudulently inflate earnings. Scrushy, who hired all five when he ran the company, blamed them and described them as having personal weaknesses.

Scrushy wore a dark business suit in court, but his leg shackles jingled as he arrived for his first day of testimony. He changed back into prison garb when his testimony ended and he was returned to a federal prison in Beaumont, Texas.

Scrushy, who is appealing his bribery conviction, was accused of arranging $500,000 in contributions in 1999 to then-Gov. Don Siegelman's campaign for a state lottery in return for an appointment to a hospital regulatory board. Scrushy and Siegelman, who also is appealing his conviction, contend no crime was committed.

[Associated Press]

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