Ex-CEO Innocent, Lawyer Asserts
A lawyer for HealthSouth Corp. founder Richard Scrushy on Monday said the former chief executive first learned of an accounting fraud at his company on March 17, one day before he was secretly tape-recorded by his chief financial officer, leading to charges by federal regulators.
The attorney, Donald Watkins, said HealthSouth’s ex-CFO William Owens, who later pleaded guilty to the fraud, disclosed the accounting scheme to Scrushy and the next day made the tape, which was turned over to federal authorities. On March 19, the Securities and Exchange Commission accused Scrushy of artificially boosting the company’s profit by $1.4 billion since 1999. The figure has since ballooned to $2.5 billion dating back to 1994.
“March 17 was the first clue,” Watkins told reporters outside federal court in Birmingham, Ala., during a hearing on whether to unfreeze Scrushy’s assets. “If there is fraud, we didn’t do it. We can’t vouch for all 51,000 employees.”
The comments came during the fourth day of hearings on Scrushy’s bid to win release of about $10 million for living expenses and $30 million to pay defense lawyers and forensic accounting experts.
Scrushy’s lawyers won permission from Judge Inge Johnson to speak to the media after they argued that prosecutors were making their case -- including excerpts from the tape -- by talking with reporters.
Prosecutors, building a case against Scrushy, are relying on the taped conversation to show that Scrushy was well aware of the fraud and helped engineer it.
Scrushy has not been charged with a crime
On the question of living expenses, the judge did not make a full ruling. She did allow the Richard M. Scrushy Charitable Foundation to pay $12,000 to the Child Advocacy Center, $33,000 to Heifer International, $100,000 to the United Cerebral Palsy Foundation of Birmingham and reasonable and ordinary business expenses.
The judge also temporarily allowed a clothing business operated by Scrushy’s wife, Leslie, to pay ordinary and reasonable business expenses.
The assertions of Scrushy’s innocence came on a day his personal accountant outlined the ex-CEO’s finances for the court, including his mortgage-free mansions and a web of personal companies.
Mary Schabacker, who oversees the books of five corporations that Scrushy controls, said the only debt any of them owe is to corporate siblings -- and they generally don’t pay it back.
“It’s all currently due, but do we have plans to [pay] it? No,” she said.
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Bloomberg News contributed to this report.
