Scrushy may sue HealthSouth over `illegal' firing

Effort to recoup expenses tied to employment pact

June 30, 2005|By Thomas S. Mulligan | Thomas S. Mulligan,LOS ANGELES TIMES

It seems that 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 yesterday. "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 also hopes to recoup the $25 million in legal costs he incurred fighting the criminal charges.

Turner, in a telephone interview, said Scrushy hasn'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 yesterday what the company's board 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?" said Grinney. "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 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 is rushing to complete its long-delayed financial reports for the year 2004. On Monday, the company filed a restatement of financial reports for years 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 may be completed earlier than expected, perhaps before the end of this year.

"The standard of proof for shareholders doesn't involve reasonable doubt," said Gregory P. Taxin, chief executive of the San Francisco proxy advisory firm Glass Lewis & Co.

"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."

"No one will vote for him," said Ben Nahum, portfolio manager at David J. Greene & Co., which owned about 844,000 shares of HealthSouth, according to a March filing. "Trust me, he has no support outside of those 12 idiots they found to sit on the jury. The man's a criminal."

Scrushy remains the largest individual holder of HealthSouth stock, with 3.76 million shares, or just less than 1 percent of the total.

In a shareholder election, said Taxin, "I think Mr. Scrushy would win approximately 1 percent of the votes."

HealthSouth's shares slid 13 cents, to $5.80 yesterday. The stock is down 7.6 percent so far this year, which, on paper, has cost Scrushy about $1.8 million.

The company's stock traded above $30 a share before the SEC and Justice Department investigations began.

The Los Angeles Times is a Tribune Publishing newspaper. Bloomberg News contributed to this article.

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