HealthSouth’s Ex-CEO Must Pay $47.8 Million, Court Says

Fired HealthSouth Corp. Chief Executive Richard M. Scrushy must repay $47.8 million in bonuses that he wrongly received during a massive financial fraud at the rehabilitation and medical services chain, the Alabama Supreme Court ruled Friday.

The court unanimously upheld a lower court order that sided with a shareholder who sued Scrushy claiming that the HealthSouth chief received the bonuses improperly as the scandal secretly engulfed the company for seven years beginning in 1996.

The justices rejected Scrushy’s arguments that he was justified in keeping the money even though HealthSouth lost millions during the period when it was reporting a profit.

Scrushy was acquitted of all criminal charges in the $2.7-billion fraud at HealthSouth, but he faces a possible federal prison sentence after being convicted in a separate state bribery scheme involving his tenure at HealthSouth.

“This is a victory for the shareholders of HealthSouth,” said John Somerville, an attorney for stockholder Wade Tucker, who filed the suit in Birmingham.

“It provides a sense of justice, and the money will go back to HealthSouth,” he said.

An attorney for Scrushy did not comment Friday, but the former executive could ask for a rehearing in state court or appeal the decision to the U.S. Supreme Court.

HealthSouth spokesman Andy Brimmer said the company was pleased with the state court’s decision.

“We at HealthSouth are continuing our unprecedented recovery from the massive fraud that occurred during the tenure of Richard Scrushy as CEO and chairman,” he said in a statement.

Tucker sued Scrushy and others in 2002 amid allegations that Scrushy was improperly enriching himself and his family from his position at HealthSouth.

The earnings fraud was revealed in 2003, when the government sued HealthSouth, Scrushy and other executives alleging a huge swindle.

Scrushy received $46.8 million in bonuses from 1996 to 2002 even though the company lost as much as $466 million annually during the period, according to the court’s decision.

Scrushy claimed that his employment contract mandated the payments, but the court said he wasn’t due anything, because the company, which he founded, wasn’t making money.

“Without annual net income, Scrushy could not have had the opportunity to earn the target bonuses,” said the decision by Justice Champ Lyons Jr.

Fifteen former HealthSouth executives pleaded guilty in the fraud, and a 16th was convicted by jurors.