Scrushy on trial: He's sure he'll win

Richard M. Scrushy's career is defined by boldness and extreme confidence. After all, the former respiratory therapist started HealthSouth in 1984 -- mostly with his money -- to revolutionize physical therapy by taking it out of hospital basements and small facilities.

Scrushy was successful in a short time -- he took HealthSouth public in 1986, and a few years later, thanks to aggressive acquisition and marketing strategies, the company was the nation's largest outpatient services company.

But now Scrushy is awaiting federal trial on charges related to a massive accounting scandal at HealthSouth, which fired him as CEO once the scandal came to light. And true to his style, he's facing it with boldness and confidence -- he's sure he'll be found innocent, and that he might even be able to work for HealthSouth again.

"Absolutely we believe that we will be fully acquitted. We're innocent of these charges," Scrushy said in an interview in early December. "We're looking forward to our day in court to put this behind us and let us go back to having a normal life. My family has been wrongly burdened with this. It's been a lot of pain and anguish."

Jury selection in Scrushy's trial is scheduled to begin Jan. 5, 2005, in U.S. District Court in Birmingham, Ala., HealthSouth's home base.

Prosecutors are expected to contend that Scrushy was the ringleader of the accounting scheme. They say he threatened and intimidated other HealthSouth executives to go along with the scheme while he personally reaped more than $278 million in "ill-gotten gains" to furnish a lavish lifestyle in which he bought expensive cars, jewelry, art, boats and even an airplane.

But Scrushy's attorneys are expected to contend that he was oblivious to the fraud that was happening around him -- that it was so well hidden in a complicated web of accounting tricks that he should not be held responsible for it.

Scrushy declined to discuss specifics about the case, and his attorney, Donald Watkins, and the lead prosecutor, U.S. Attorney Alice Martin, declined to comment on the trial, citing a gag order.

But observers say Scrushy, fired as HealthSouth CEO in the wake of the scandal, faces an uphill battle. Seventeen other former HealthSouth executives -- including all five chief financial officers -- have pleaded guilty to charges in an alleged plot to inflate the company's earnings by $2.6 billion between 1996 and 2003, in order to boost the company's stock price. All are believed to be cooperating with prosecutors and could testify against Scrushy.

Observers say his attorneys will have to work hard to discredit those witnesses as well as any paper trail that leads to Scrushy.

They expect the trial to be closely watched not only because of Scrushy's larger-than-life persona but also because his case is thought to be the first court test of a relatively new law that holds corporate executives accountable for their company's financial statements.

If convicted of all the charges against him, which include 58 counts ranging from conspiracy and fraud to obstruction of justice and money laundering, Scrushy could face up to 450 years in prison and more than $30 million in fines, as well as being ordered to forfeit ill-gotten gains.

To Scrushy, the only possible outcome is exoneration. He said there is no way he would cut a deal with prosecutors to avoid a trial.

"We want our name fully cleared. There is no settlement. We didn't do these things," he said. "I do not want to be associated with this crime and should not be."

The Scrushy name

For Scrushy, the trial is literally about saving his good name. Thanks to generous charitable and corporate giving, it's all over Birmingham, from the Vestavia Hills Richard M. Scrushy Library to the Jefferson State Community College Richard M. Scrushy Campus. He said regaining a good reputation at home could be difficult, but, of course, he believes it will be done.

"I don't know where you go to get your name back after you've been so brutally attacked by so many people," he said "[But] we believe that people just as quickly as they attack you, they will forgive. Once the truth comes out, I think they can very quickly turn the other way.

"I think there will be a lot of sympathy. People will say that's horrible and that could happen to me."

If given the chance, Scrushy would like to return to HealthSouth, which he said was like his child. He was fired from the company a few weeks after the accounting scandal surfaced in March 2003.

At that time, HealthSouth's stock was pulled from the New York Stock Exchange. It re-emerged on the penny-stock, over-the-counter "pink sheets," trading for a dime a share. However, the company is back up to more than $5 a share.

Scrushy said HealthSouth's ability to weather this scandal -- it continues to operate and narrowly averted bankruptcy -- proves how sound the business is.

"We worked so hard for 20 years to build this great company, and a lot of sweat and blood and muscle and passion was in that," he said. "I was wrongly terminated. I was totally wrongly put out. So I think the right thing to do would be to correct what the wrong was. I'm very much looking forward to an acquittal so I have the right to go back to HealthSouth."

But observers see little chance of that happening. Attorneys who have been following the case say the evidence against him is daunting.

"I think they're going to get him," said Joe Casson, a health law attorney with Proskauer Rose, LLP, in Washington, DC. "I think there's enough here for the government to make out the case they'll have to make out."

Casson said the witness testimony against Scrushy could be the most damaging. Indeed, the indictment alleges that Scrushy had meetings with co-conspirators in which they discussed the phony accounting, and that once he even allegedly offered to "take care of" a co-conspirator's family if that person would take the blame for the overstatements.

Casson said the meetings were so common they were called "family meetings."

He said the conspirators also spent a lot of time creating a "fake audit trail" to cover up the fraud, which could give prosecutors a bounty of information to use at trial.

But Casson said the prosecution might have a more difficult time demonstrating to a jury exactly how the alleged accounting fraud was perpetrated because it involved complex accounting principles.

"It's a difficult thing to explain to a jury," he said, adding later that the defense could benefit from trying "to complicate the accounting" to make it less clear that Scrushy was connected to it.

Casson also expects the defense to try to diminish the credibility of the witnesses that the government uses by showing that many of them cut "sweetheart" deals to get light sentences with little or no prison time in exchange for their cooperation.

The trial is believed to be the first test of a law known as the Sarbanes-Oxley Act of 2002, which requires chief executives to certify their company's financial statements, asserting that the statements are true to the best of their knowledge. The indictment alleges that Scrushy knowingly signed off on false financial statements filed with the Securities and Exchange Commission, in violation of this law.

Casson said Scrushy's lawyers might feel confident that they can take on Sarbanes-Oxley, even though they were denied a motion challenging its constitutionality in a Nov. 23 ruling from U.S. District Judge Karon Bowdre. "It may be that they think they can attack Sarbanes-Oxley on grounds that it inherently invokes self-incrimination," he said.

Don Cochran, a professor at Samford University's Cumberland School of Law in Birmingham and a former prosecutor, said the trial could raise some difficult questions about the parameters of the Sarbanes-Oxley law.

"If his defense is, as it seems to be, that he was misled by subordinates, is he responsible just for signing the form? That will be another interesting question that the court will have to address," he said.

Cochran said Scrushy's fame could make it difficult to find an impartial jury.

"Everything he did was big. His houses were big, he lived a lavish lifestyle and even when he would give money -- and he gave a lot of money to the community, and he always attached his name to it -- even his charity was done in a big sort of way. So it probably wouldn't be surprising that his downfall was in a big sort of way," Cochran said.

Critics questioned if Scrushy was attempting to win over potential jurors when he and his wife, Leslie, began hosting a TV talk show in March on a Birmingham station. The show, "Viewpoint," features a short devotional reflecting the Scrushys' faith and discussion with guests from the community. But Scrushy's representatives insisted nothing about the case would be discussed on the show.

The show is just one example of how Scrushy has continued to lead a public life in the wake of the scandal. He also launched a Web site (link) on which he has posted letters of encouragement, rebuttals to news stories and legal filings.

Scrushy said he feels like prosecutors are trying to make an example of him, perhaps because of his fame.

"I think it was necessary politically to have some poster boy, and there's no doubt that I was a big target," he said. "When you build a company as large as I did, you're a good target to be a poster boy."