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HEALTH INVESTMENT CASE As trial opens, government blames CEO for fraud



Published: Wed, January 26, 2005 @ 12:00 a.m.



Testimony from the chief financial officer will continue today.

BIRMINGHAM, Ala. (AP) -- Fired HealthSouth CEO Richard Scrushy made millions off a seven-year scheme to overstate earnings by about $2.7 billion as investors large and small suffered, a prosecutor told jurors Tuesday as testimony opened in Scrushy's corporate fraud trial.

A Scrushy lawyer countered that the fraud at HealthSouth Corp. was the work of a tightly knit group of executives -- known as "the family" -- who purposely kept Scrushy in the dark.

"This was no ordinary family. This was a family that operated as a unit on their own," defense attorney Jim Parkman said.

U.S. Attorney Alice Martin said Scrushy, 52, sold about $150 million worth of his own HealthSouth stock as subordinates created false financial statements to make it seem the rehabilitation giant was meeting analysts' expectations, boosting company shares.

The government also charged that Scrushy spent more than $200 million on such luxuries as waterfront mansions, opulent cars, a racing boat, bronze statues, a 21-carat diamond ring and a $3.2 million airplane.

All the while, Scrushy was getting private reports to show him the company's true financial condition and not telling investors what was going on, Martin said.

"The evidence will show that Richard Scrushy as chief executive officer gave phony numbers to the public," said Martin, calling Scrushy "a very hands-on leader" who picked his top aides and later tried to sway their statements to federal agents once an investigation began.

The defense conceded that a fraud occurred. But Parkman blamed a group of overly ambitious executives who hid the misstatements from Scrushy, whom he portrayed as an everyman CEO who did his best.

"How could it get by Richard Scrushy? You know how? This group controlled the numbers," Parkman said.

But HealthSouth's first chief financial officer, Aaron Beam, testified that Scrushy was very familiar with the company's finances and received weekly reports detailing everything from revenues to how many patients were treated at HealthSouth sites.

"Richard managed by the numbers, sort of a micromanager style," said Beam, who helped Scrushy found the company in 1984 and retired in 1997. His testimony will resume today.

What the leader said

Outside the courtroom after the first day's testimony, Scrushy said, "We were waiting for this day. We're ready to put it behind us."

The judge said the trial could last four months.

The government's case also was expected to include testimony by HealthSouth's four other chief financial officers under Scrushy, each claiming they talked with Scrushy about the scheme.

The five CFOs and 10 others agreed to plead guilty in the criminal fraud case, which surfaced in March 2003 when the Securities and Exchange Commission filed a civil suit against HealthSouth and Scrushy.

Prosecutors are seeking $278 million in personal assets, including waterfront homes, luxury cars and a yacht, as well as a prison sentence that could amount to life if convicted. But U.S. District Judge Karon Bowdre told the jury not to be swayed by testimony about Scrushy's wealth.

"Mr. Scrushy is not on trial for making and spending money," she said. "The real focus of your inquiry is whether Mr. Scrushy knowingly participated in the fraud at HealthSouth."




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