Scrushy Defense Attacks Tapes

Richard Scrushy’s lawyers Tuesday launched their broadest attack yet on secretly made recordings that prosecutors say prove the fired HealthSouth Corp. chief executive was behind a massive accounting fraud.

Testifying for the defense, audio expert Paul Ginsberg used the word “suspicious” to describe a gap in one recording and suggested that FBI agents decided on their own what conversations to record and to leave out.

Ginsberg also said it was “very difficult” to determine whether snippets of some conversations had been edited and perhaps spliced together.

But Ginsberg stopped short of saying that anyone had tampered with any of the recordings, made for the FBI by former HealthSouth finance chief Bill Owens during his talks with Scrushy in the two days before the huge conspiracy became public in 2003. The prosecution played them earlier as key evidence in Scrushy’s corporate fraud trial in U.S. District Court in Birmingham, Ala.

Although the defense claims the digital recordings prove Scrushy knew nothing of the fraud, his attorneys also are fighting hard to raise questions about how they were made and their contents.

In one recording, Scrushy was heard telling an aide “everybody goes down” if HealthSouth’s problems became public. In another, Scrushy had no apparent reaction when Owens said his wife was worried about the company’s “phony financial statements.”

In another major ongoing fraud trial Tuesday, prosecutors rested their fraud and larceny case against former Tyco International Ltd. Chief Executive L. Dennis Kozlowski and his ex-finance chief after 13 weeks of testimony.

Kozlowski and Mark Swartz, Tyco’s former chief financial officer, are charged with looting the company of $150 million and selling $575 million in Tyco shares and options whose price they inflated by misleading directors and investors.

They are being retried in New York state court after the first case ended in a mistrial last April. The defense has yet to present its case.

Prosecutors outlined their case more quickly than the 18 weeks they took during the first trial. After that trial, jurors said prosecutors spent too much time on Kozlowski’s lavish lifestyle, such as a $2-million birthday party.

Kozlowski, Swartz and lawyers on both sides of the case declined to comment Tuesday outside of court.

After the prosecution rested, lawyers for Kozlowski and Swartz asked Justice Michael Obus to dismiss all charges against their clients, a routine request in criminal trials. The lawyers argued that prosecutors didn’t present enough evidence to prove the charges.

Swartz and Kozlowski face 31 charges of stock fraud, falsifying business records, grand larceny and conspiracy. The most serious charge carries a 25-year jail term.

“Kozlowski and Swartz are alleged to have stolen money; that’s basically it,” said Sung-Hee Suh, a partner at Schulte Roth & Zabel in New York.

Kozlowski, 58, didn’t testify in the first trial, and his lawyers declined to comment on his plans for this trial. Swartz, 44, spent nine days on the witness stand in the previous trial, and his lawyer James Mitchell wouldn’t say whether his client would take the stand this time.