HealthSouth Scandal Doesn't Slow Former Chief
nytimes.com
By MILT FREUDENHEIM
Most of the people at the center of corporate scandals have played a cat-and-mouse game with investigators, laying low and trying to keep their assets out of the limelight. But not Richard M. Scrushy, a founder and the former chief executive of HealthSouth, the nation's largest chain of rehabilitation hospitals and surgery centers.
His personal finances are under scrutiny by a small army of government lawyers and accountants. Fourteen of his underlings have already pleaded guilty to a variety of fraud and related charges, offering admissions that prosecutors say could subject their assets to seizure under federal forfeiture laws. Prosecutors have made no secret that they are also building a case against him.
Still, Mr. Scrushy is living the outsized life he favored before HealthSouth's fortunes plunged, and his legal team is taking a combative tack.
On Wednesday, a lawyer for Mr. Scrushy asked a House subcommittee investigating HealthSouth to postpone an appearance by his client until the criminal investigation is completed. Otherwise, Mr. Scrushy will invoke his Fifth Amendment right not to incriminate himself, the lawyer, Jonathan C. Rose of the Jones Day law firm, said in a letter to the oversight and investigations subcommittee of the House Energy and Commerce Committee.
But Mr. Rose informed the panel that Mr. Scrushy had been interviewed by Mike Wallace of "60 Minutes," the CBS News program, "with no questions barred."
"We trust that interview will serve any immediate public need for information from him," Mr. Rose said in the letter, which he made available after the committee released excerpts yesterday.
The letter accused the committee staff of setting traps that could be sprung if Mr. Scrushy testified before prosecutors complete their criminal investigation. "All of us have seen the staff of this committee work on past hearings in conjunction with the Department of Justice to create perjury traps," it said.
Ken Johnson, a spokesman for the committee, called that accusation incredible, adding that "oftentimes, our committee and the Justice Department conduct parallel investigations, but they are always separate and independent." Mr. Johnson said that Mr. Scrushy would be called to testify in the next few weeks.
A spokesman for "60 Minutes" said that the interview was being edited and would not run Sunday.
Meanwhile in Alabama, where Mr. Scrushy lives and HealthSouth has its headquarters, Mr. Scrushy is maintaining a high profile.
Last month alone, he bought a $3 million yachting marina on the Alabama Gulf Coast; joined with Donald Watkins, one of his lawyers, to buy a Cessna jet; and sponsored a powerboat race in the Gulf, placing second piloting his $450,000 Skater motorboat Monopoly, which is painted like the board game with "Go" across the deck.
Some of Mr. Scrushy's legal foes say that he is being deliberately provocative. He and Mr. Watkins are "thumbing their noses at people pursuing him and his money," said Doug Jones, a former United States attorney in Birmingham who is representing shareholders suing to recover their losses on HealthSouth stock.
Mr. Scrushy has said repeatedly that he had no knowledge of wrongdoing at the company, explaining that subordinates acted without informing him. Neither he nor Mr. Watkins responded to phone calls yesterday seeking comment.
Investigators from the United States Marshals Service, the Internal Revenue Service, the F.B.I. and the asset forfeiture and money laundering section of the Justice Department have been scouring records of Mr. Scrushy's many properties for weeks, federal officials said. They hired a group of private accountants to assist in the inquiry.
The government is also conducting asset checks of the 14 former HealthSouth executives — including 5 people who served as chief financial officer — who have pleaded guilty, said Alice H. Martin, the United States attorney in Birmingham.
The government is trying to reclaim assets it believes were obtained by executives as a result of fraud, Ms. Martin explained.
"We are gathering information as to how much money they received from HealthSouth in compensation, executive loans, stock options, bonuses etc., and we fully intend to seek divestiture of all ill-gotten gains," she said.
The Securities and Exchange Commission failed last May in an attempt to freeze Mr. Scrushy's assets through a civil proceeding. At the time, Judge Inge P. Johnson ruled in Federal District Court in Birmingham that the S.E.C. had failed to connect Mr. Scrushy to the crimes that HealthSouth executives had admitted to in guilty pleas. The Justice Department would not allow S.E.C. lawyers to present testimony in the civil case that might have compromised its criminal investigation.
Prosecutors have estimated that by falsifying financial reports, HealthSouth executives inflated the company's earnings by $2.5 billion from 1997 to the beginning of this year, and exaggerated corporate assets by $800 million.
When he pleaded guilty last May, Michael D. Martin, one of the former HealthSouth chief financial officers, said under oath that "virtually every month," Mr. Scrushy had directed him "to inflate the numbers" so the company would meet the expectations of Wall Street.
Mr. Scrushy, who was once among the nation's highest paid chief executives, owns four elaborate residences as well as other real estate, more than 40 cars, several planes and powerboats, securities and other property. He also has a custom-built 92-foot yacht, the Chez Soiree, berthed near his mansion in Palm Beach, Fla.
The total value is "substantially more" than an earlier government estimate of $150 million, officials said.
Prosecuting white-collar crime moved high on the government's agenda last year as the roster of corporate scandals grew. Over the last 11 months, courts across the country have approved the freezing or seizure of $423.5 million of assets that prosecutors contend were ill-gotten, up from $413 million in the prior fiscal year, said Lester M. Joseph, a senior official of the Justice Department's asset forfeiture and money laundering section.
To keep track of Mr. Scrushy's assets, government investigators are closely watching the Internet, where they say the Monopoly racing boat and a number of other expensive properties he owns are posted as available for trade. Luxury Asset Exchange (luxuryasset.com) lists these properties at values totaling about $4.5 million. They include Alabama Gulf Coast waterfront property at Orange Beach and Ono Island, a Cessna Caravan floater plane and a 2003 Lamborghini Murciélago sports car.
Preparing to seek forfeiture in connection with a criminal case can be complicated, officials said. Agents have to determine, for example, if a property is mortgaged, subject to liens or entirely owned by a defendant. The interests of third parties cannot be stripped, said Eben Morales, deputy chief of the asset forfeiture program of the United States Marshals Service.
For example, "if the government wants to seize the plane" that Mr. Scrushy recently bought with Mr. Watkins, "it has to buy out the lawyer," said Greg Polvere, a former special agent with the Internal Revenue Service. In the meantime, he added, "anybody who does business with this guy is really under a microscope." |
