About that Lawsuit Against HealthSouth's Richard ScrushySomervell County Salon-Glen Rose, Rainbow, Nemo, Glass....Texas


About that Lawsuit Against HealthSouth's Richard Scrushy

30 June 2009 at 10:11:56 AM

I noticed an article from about the last week (Houston Chronicle) where shareholders that had been bilked due to CEO Richard Scrushy falsifying company earings (remind you of Enron????) want their judgment that they won against him in a civil lawsuit. That case was won by them in the last couple of weeks. From Insurance Journal of June 22 2009

An Alabama state judge has ordered former HealthSouth CEO Richard Scrushy to pay nearly $2.9 billion to shareholders who sued over a massive accounting fraud that nearly sent the rehabilitation chain into bankruptcy.

Circuit Judge Allwin E. Horn, who heard the case in Birmingham without a jury, ruled in favor of HealthSouth shareholders who filed a lawsuit claiming Scrushy was involved in years of overstating the company's earnings and assets to make it appear the company was meeting Wall Street forecasts.

Horn wrote in his ruling that Scrushy "knew of and participated in'' the faked reports filed with regulators from 1996 to 2002. He said the HealthSouth founder also "consciously and willfully'' violated his financial responsibilities as CEO.

Notice that this lawsuit was filed as a civil case after Scrushy beat out a federal criminal case over much the same thing.In the civil judgment, Scrushy was ordered to pay back the shareholders 2.9 billion bucks. But the shareholders are concerned that Scrushy, while he's appealing (from jail, mind you where he's passing time on bribery charges) may try to hide his assets, so they want them frozen. From the Chronicle article.

Attorneys for HealthSouth shareholders asked an Alabama judge Friday to freeze the assets of former HealthSouth CEO Richard Scrushy so they can begin collecting a nearly $2.9 billion judgment against him.

An attorney for the shareholders, Bruce McKee, said they don't expect to get the full judgment but hope eventually to collect as much as $100 million from the imprisoned HealthSouth founder.

McKee said the motion seeks to stop Scrushy from hiding assets while the case is being appealed.

I've been reading about Richard Scrushy for several years, most recentlyin connection with Don Siegelman. Scrushy was first accused of federal accounting-fraud charges but got off (others in his company, at the top, were not so lucky),-from NPR

 While Scrushy was acquitted of criminal charges in federal court in 2005, 15 former HealthSouth executives pleaded guilty and a 16th was convicted. Some testified in the civil case, claiming Scrushy knew that financial reports were faked.

From CBSNews about that federal criminal trial in 2005.

Federal prosecutors say that Scrushy cooked the books at HealthSouth, the company he founded, and that he falsely inflated its profits by almost $3 billion to push up the price of its stock. ...Scrushy admitted that his books were cooked, but insisted he had nothing to do with it....Here's how the SEC describes what it calls Scrushy’s scheme. Each quarter, HealthSouth's senior officers would present Scrushy with the company's actual earnings, and he would compare them to Wall Street expectations. If the actual results fell short of expectations, Scrushy would tell his management to "fix it" by recording false earnings to make up for the shortfall.

From Bibglaw

The facts supporting these claims are asserted in the Joint Second Amended Consolidated Class Action Complaint for Violations of the Securities Laws, which Bondholder Plaintiffs filed together with the plaintiffs in the HealthSouth Stockholder Litigation.  The facts alleged in the Joint Complaint, which are based on the extensive investigation conducted by Lead Counsel, detail a massive scheme undertaken over the course of sixteen years to manipulate HealthSouth's financial statements by creating fictitious revenue and income, capitalizing normal operating expenses, failing to write off impaired accounts receivable and other assets, and cheating Medicare and private insurers.  As set forth in the Joint Complaint, this scheme - the longest running financial fraud in U.S. history - included regular meetings, referred to within HealthSouth as "family meetings," during which "family members," operating under the direction of former CEO Scrushy, decided how much income needed to be created, and how to do so in order to meet Wall Street's expected financial results.  The Joint Complaint also describes the roles Ernst & Young and the investment banks and bankers played in HealthSouth's financial fraud.

And here's an SEC filing.  It Does Remind One Of  Enron.

Ugh. There was an investor lawsuit in 2003 (same one as the one that just got resolved? Probably)  and one of the shareholder groups affected was a teacher's retirement fund. Ugh. Ugh. Ugh. From 2003

Scrushy, indicted by a federal grand jury in October for securities fraud, will stay on the board under the settlement, Grant said. In Delaware, where HealthSouth was incorporated, the removal of a director requires a shareholder vote. Scrushy has denied wrongdoing, blaming subordinates for the alleged fraud.

The company hasn't held a shareholders meeting in 18 months because of concern that a change of control would prompt demands to immediately repay $2 billion of its $3.4 billion of debt. The Securities and Exchange Commission in March accused Scrushy and HealthSouth of inflating earnings, and five former chief financial officers have pleaded guilty.

And here's the district court document that shows who he bilked. Public Pension Funds, which included Retirement Systems of Alabama, Arkansas Teacher Retirement System, Public employees Retirement System of Mississippi, Louisian Municipal Police Employees Retirement System; also State Treasurer of Michigan (which managed the Michigan Public School Employees Retirement System, Michigan State Plice Retirement System, Michigan Judges Retirement System) , New Mexico State Funds (State Investment Council and Educational Retirement Board), Pension Fund Group (go look at the list, there's a lot and includes Teamsters and Union money)

Interesting note from the article about opening clinics because Medicare paying big money

Scrushy had a medical background, and had been a trained respiratory therapist. He saw that Medicare was paying big money to diagnose and treat the elderly, so he opened clinics that were able to do that with less overhead than the larger hospitals. After that, when he realized that athletic baby-boomers were getting sports injuries that required costly rehabilitation, he specialized in that, too, hiring famous athletes who'd been his clinics' patients to spread the word.

What did he do when it looked like the stock was going to fall? Guess.

Well, I think the company should be north of $20 per share right now. Certainly we should be higher than we are now,” said Scrushy on CNBC two years ago when the stock was selling at $15. “I would expect to see the company in the 20s and that's where we're headed, we believe."

Just 12 days later, Scrushy sold more than five million shares of his stock. Now, HealthSouth's board has barred him from even entering any offices of the company he built. And HealthSouth admits that none of its past profit numbers can be trusted. Scrushy still lives an over-the-top millionaire's life. But now that a jury in Birmingham will probably decide his fate, he wants to downplay his wealth.

He would not let 60 Minutes videotape his four mansions, his collection of antique cars, or his wine cellar, which has bottles worth thousands of dollars apiece.

Then he was convicted in 2006 of paying half a million dollars in bribes to former Alabama governor Don Siegelman in exchange for a seat on a state health-care board. (Don Siegelman has said he was set up by the Bush administration, specifically Karl Rove. You'd think that would be a side issue to this case, but the other day Scrushy asked for a new trial, saying he was a victim of selective prosecution.)

The motion says Scrushy was prosecuted because he exercised his First Amendment right to make a contribution to Siegelman's 1999 campaign for a statewide lottery. Prosecutors claimed Siegelman appointed Scrushy to a key hospital regulatory board in exchange for him arranging $500,000 in contributions to the lottery campaign.

I have only recently been reading, in connection with Luke Humphrey/Susan Mclendon, about Healthsouth in Tyler. I didn't make the connection with Richard Scrushy until today.

I wonder, when you have someone that bilks not only systems, and commits fraud, but causes others who invested with him (like teachers whose retirement funds immediately were in jeopardy) who pays? Here's Scrushy with FOUR mansions, etc, that somehow got off in a criminal trial from being responsible for the fraud he perpetrated, but is being asked to cough up the money since he's been convicted in a civil trial. If he doesn't and he manages to hide his assets, what happens to all these TEACHERS WHO ARE RETIRED? I mean, if a teacher can't afford to be retired, he or she will come back onto the public tax rolls for aid; I don't disagree with this, but it isn't fair for some rich crook to bilk people out of their hard earned retirement savings and continue to profit. I hope the investors who ask that his funds be frozen get their way.

At some point, I'd like to really look at Medicare and how it works. I don't understand it right now except that it is dang expensive. In Scrushy's case, with Healthsouth, he was opening clinics in order to benefit specifically from Medicare but putting in fraudulent claims and cooking the books. How often does this occur with ANY entity like this and how would the public know unless there's a whistleblower with a conscience?

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