The trial of Richard M. Scrushy, the charismatic founder and former chief executive of HealthSouth who is being charged with fraud, opens next week in a federal district court in Birmingham, Ala.
The trial “will be a fascinating soap opera,” said John C. Coffee Jr., a Columbia University professor who specializes in securities law. More than a dozen of Mr. Scrushy’s former employees at HealthSouth, a chain of rehabilitation hospitals and surgical centers, are expected to testify against him.
Yesterday, in a separate proceeding, the management of HealthSouth agreed to pay the government $325 million plus interest to settle claims that the company had inflated its Medicare bills. The Medicare issues first attracted notice when Mr. Scrushy was still at the company.
Mr. Scrushy was the first chief executive of a major company to be indicted on charges of knowingly filing false financial statements under the Sarbanes-Oxley law enacted by Congress in the wake of the Enron debacle.
He has pleaded not guilty to 58 criminal charges and denies any knowledge of a scheme that prosecutors say was used to boost the price of HealthSouth’s stock by inflating the company’s financial results by nearly $3 billion.
Mr. Scrushy, a former respiratory therapist, helped build HealthSouth into the nation’s largest for-profit chain of rehabilitation hospitals. Well known for a lavish lifestyle, Mr. Scrushy relished being the center of attention, surrounded by sports celebrities and the trappings of wealth, which included several homes. He made numerous charitable gifts, often using HealthSouth money, and his name was splashed all over Birmingham, from sports fields to junior college campuses.
But in early 2003, the F.B.I. raided HealthSouth’s headquarters and federal prosecutors soon followed with charges that the company had falsified its financial numbers for seven years, inflating its earnings and assets. Former employees, including a former chief financial officer who agreed to wear a recording device to tape a conversation, accused Mr. Scrushy of orchestrating the fraud.
Prosecutors will seek to portray Mr. Scrushy as an executive who alternately threatened his subordinates and pleaded with them to falsify the company’s financial reports. They are expected to rely heavily on the testimony of 15 former employees, including five former chief financial officers, all of whom have already pleaded guilty to various charges.
But the defense is likely to argue that Mr. Scrushy is the victim of a conspiracy that includes his former employees, the federal government and the news media. Earlier this month, for example, Mr. Scrushy accused The Birmingham News of libel in a lawsuit seeking multimillion-dollar damages, according to Mr. Scrushy’s personal Web site. A lawyer for The Birmingham News said the newspaper would defend its reporting.
Pamela H. Bucy, a law professor at the University of Alabama in Tuscaloosa, who specializes in white-collar crime, said Mr. Scrushy’s lawyers might argue that their client delegated authority to his chief financial officer and other staff members and “was unaware that they were inflating the earnings numbers of the company.”
The Scrushy legal team will also seek to convince the jury that Mr. Scrushy, who recently started going to services at a predominantly African-American church in Birmingham and has started a local television show filmed at the church, is a fundamentally good man who has been wrongly accused. Douglas Jones, a Birmingham lawyer who represents shareholders suing the company, called it “an effort to counter some of the bad publicity surrounding HealthSouth.”
Jamie Wareham, a defense lawyer with the firm Paul, Hastings, Janofsky & Walker in Washington, said the Scrushy team’s strategy “clearly has been to keep him in the limelight during the prior year and bring attention to the many good things he has done.”
