Scrushy Might Contest His Firing
It seems Richard M. Scrushy would rather fight than quit.
Scrushy, who was acquitted on all charges related to the $2.7-billion accounting fraud at HealthSouth Corp., contends he was illegally fired as the company’s chief executive and has hired a lawyer to pursue a possible case against its directors.
“He had an employment contract with the company, and he would assert that he was illegally fired from his job under the terms of that contract,” Scrushy’s spokesman, Charles Russell, said Wednesday. “He will pursue his options under that contract.”
Minutes after his acquittal in federal court Tuesday, Scrushy declared that there were “a lot of wrongs that need to be made right.” Those wrongs, in Scrushy’s view, also include the company’s determination to kick him off the board of directors.
Scrushy, who founded Birmingham, Ala.-based HealthSouth, has hired attorney Kile T. Turner to try to enforce his employment contract, under which he hopes to recoup the $25 million in legal costs he incurred fighting the criminal charges.
Turner, in a telephone interview, said Scrushy hadn’t yet taken any legal steps. “At this point, we’re just reviewing the contract and looking at our options,” he said.
HealthSouth maintains that it canceled Scrushy’s employment contract when it unseated him in March 2003, after the fraud had come to light and the Securities and Exchange Commission had filed a broad civil lawsuit against Scrushy and the company.
HealthSouth’s current chief executive reiterated Wednesday what the company’s chairman had said the day before: There is no way Scrushy will return.
“I can tell you I’m not hiring him to any position,” CEO Jay Grinney told securities analysts at a conference in New York that coincidentally fell on the day after the verdict.
“Might he launch some legal challenge?” Grinney said. “We don’t know, but we’re certainly ready for any legal challenge that might come.”
Federal investigators obtained guilty pleas from 15 former HealthSouth executives who described an audacious seven-year scheme that involved pumping up quarterly sales and profits by arbitrarily inflating hundreds and hundreds of line items in the company’s financial reports.
The government -- and five former HealthSouth chief financial officers who testified during the four-month trial -- said Scrushy orchestrated the fraud to enrich himself by boosting the company’s stock price. But the Birmingham jury of seven men and five women didn’t find the witnesses or the other evidence persuasive.
Grinney told the securities analysts that HealthSouth was rushing to complete its long-delayed financial reports for 2004. On Monday, it filed a massive restatement of financial reports for 2000 through 2003, turning fraud-inflated profits into losses.
HealthSouth wants to remove Scrushy from its board, but that requires a vote of shareholders at an annual meeting. The meeting cannot be scheduled until the company’s financial filings are up to date. Grinney said the process might be completed earlier than expected, perhaps before the end of this year.
If Scrushy chooses to fight his removal, his chances are slimmer than they were with the Birmingham jury, said Gregory P. Taxin, chief executive of San Francisco proxy advisory firm Glass Lewis & Co.
“The standard of proof for shareholders doesn’t involve reasonable doubt. It involves losses in the billions of dollars,” Taxin said. “The issue of whether Scrushy was guilty of fraud isn’t the point. The mere fact that he missed the massive fraud going on under his nose is going to be enough for shareholders to reject him as a director.”
Scrushy remains the largest individual holder of HealthSouth stock, with 3.76 million shares, or just under 1%.
In a shareholder election, Taxin said, “I think Mr. Scrushy would win approximately 1% of the votes.”
HealthSouth shares slid 13 cents to $5.80 on Wednesday. The stock is down 7.6% this year, which, on paper, has cost Scrushy about $1.8 million.
