Federal prosecutors add counts against fired HealthSouth CEO

Perjury, obstruction part of superseding indictment

September 30, 2004|By BLOOMBERG NEWS

BIRMINGHAM, Ala. - Federal prosecutors added perjury and obstruction of justice charges to the criminal case against fired HealthSouth Corp. Chief Executive Officer Richard M. Scrushy yesterday in a new indictment in the rehabilitation giant's accounting scandal.

The new charges, part of a superseding indictment, were announced by the Justice Department as it consolidated conspiracy and fraud charges and trimmed the number of counts from 85 to 58.

Scrushy, 52, told U.S. Magistrate Judge T. Michael Putnam during a brief arraignment yesterday that he was "absolutely not guilty." Outside court, defense lawyer Jim Parkman described the reduction in counts as a victory.

Charlie Russell, a Scrushy spokesman, said defense attorneys had expected a new indictment. He said it was issued to conform with a Supreme Court ruling that requires prosecutors to spell out any allegations that they intend to use in a possible sentencing hearing. A federal grand jury added three counts of perjury and one count of obstruction of justice in the new indictment.

Scrushy previously pleaded not guilty to charges accusing him of conspiracy, securities fraud and money laundering, among other crimes. Free on $10 million bail, he contends that a $2.6 billion accounting fraud at HealthSouth was committed by others without his knowledge.

A federal judge has scheduled jury selection in his trial to begin Jan. 5. Besides a lengthy prison sentence, prosecutors are seeking $278 million in assets they contend Scrushy made off the fraud while he ran Health South, the largest operator of U.S. rehabilitation hospitals.

The new indictment accuses Scrushy of lying to officials during a Securities and Exchange Commission investigation into HealthSouth's finances that began in 2002. Prosecutors allege that Scrushy obstructed justice by attempting to corrupt other alleged coconspirators and influence their testimony on March 17, 2003, after he testified to the SEC, Martin said.

"They are scrambling to come up with something," Donald Watkins, one of Scrushy's lawyers, said in a statement. "We feel very good about winning on 27 of the felony charges [cut from the indictment] before the start of the trial."

Scrushy is the first former chief executive to be charged under the Sarbanes-Oxley Act, which calls for prison if convicted of signing regulatory filings that contain fraudulent information. He is challenging the law as unconstitutional.

If convicted of all charges, Scrushy could receive a sentence of 450 years in prison and more than $30 million in fines, prosecutors said. The government also is seeking to seize $278 million in cash, mansions, a yacht and other assets.

The government has charged 19 people in its HealthSouth investigation since March last year. . Of those, 17 pleaded guilty - including five former chief financial officers - and agreed to cooperate with prosecutors.

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