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Scrushy civil lawsuit to go to mediator, not jury

The former HealthSouth chief still has plenty to say about the outpatient services giant.

By Katherine Vogt — Posted Oct. 10, 2005

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The Securities and Exchange Commission's lawsuit accusing former HealthSouth chief Richard Scrushy of fraud is headed for mediation rather than jury trial.

U.S. District Judge Inge P. Johnson in Birmingham, Ala., gave the order in a brief ruling on Sept. 15, noting that a separate federal lawsuit by HealthSouth investors also had been referred for mediation. She said this lawsuit should be mediated on or before Nov. 4.

The SEC had requested a jury trial in an amended complaint filed in the wake of Scrushy's June 28 acquittal of federal criminal charges in connection with a $2.7 billion accounting scandal at Birmingham-based HealthSouth.

The SEC lawsuit seeks $785 million from Scrushy for allegedly masterminding a scheme to boost HealthSouth's stock price by artificially inflating earnings. The agency has pursued its civil case despite Scrushy's success in his criminal trial. Civil cases carry a lower burden of proof than criminal cases.

Scrushy recently spoke out about HealthSouth, criticizing the outpatient services giant following a disclosure that its earnings were being hurt by new federal rules and regulations. The company told investors on Sept. 13 that its second quarter earnings would be about $154 million, roughly $10 million less than earlier projected.

"You've got to have leadership and you've got to have vision," Scrushy said at a Sept. 15 news conference in Birmingham, Ala., according to published reports. "I, as a director of the company, I want some answers,"

Technically, Scrushy remains on the board of HealthSouth, though its directors exclude him from meetings and have vowed to vote him out when an annual meeting is held.

Meanwhile, HealthSouth made clear that it wants nothing to do with the former leader. In a statement released after Scrushy's news conference, the company said, "It is astonishing that he would have the audacity and shamelessness to comment on the current operations or the dedication of our approximately 40,000 employees."

While the company haggled with its former chief, two former HealthSouth executives who were previously ordered to serve probation but whose sentences were appealed were resentenced on Sept. 20.

Michael Martin, former chief financial officer, was sentenced to seven days in prison, two years of probation, a $50,000 fine and forfeiture of $2.4 million. Richard Botts, a former senior vice president, was sentenced to five years of probation, fined $1,000 and ordered to forfeit $265,000.

Prosecutors called the sentences "very disappointing."

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