Richard Scrushy

Richard Marin Scrushy[1] (born August 1952[2]) is an American businessman and convicted felon. He is the founder of HealthSouth Corporation, a global healthcare company based in Birmingham, Alabama.[3] In 2004, following an investigation by the Federal Bureau of Investigation (FBI), Scrushy was criminally charged by the U.S. Securities and Exchange Commission (SEC).[4] Scrushy was charged with 36 of the original 85 counts but was acquitted of all charges on June 28, 2005, after a jury trial in Birmingham.[5]

Richard Scrushy
Born
Richard Marin Scrushy

August 1952 (age 68)
Selma, Alabama, U.S.
OccupationBusinessman
founder and former chairman and chief executive officer of HealthSouth Corporation,
former chairman and chief executive officer of MedPartners, Inc.
Criminal statusreleased from prison
Spouse(s)Debbie Cody (197?–197?)
Karon Brooks (1978–1996)
Leslie Anne Jones (1997–present)
Criminal chargeBirmingham trial: 36 charges of fraud, false corporate reportings, and making false statements
Not Guilty
Montgomery trial: bribery and mail fraud
Guilty
PenaltyBirmingham trial: acquitted
Montgomery trial: 82 months in federal prison, three years' probation, United States Dollars $267,000 in restitution, a fine of $150,000 and 500 hours of community service

Four months after his acquittal in Birmingham, on October 28, 2005, Scrushy was indicted by a federal grand jury in Montgomery, Alabama, along with former Alabama Governor Don Siegelman.[6][7] The indictment included 30 counts of money laundering, extortion, obstruction of justice, racketeering, and bribery.[6][7] Although the new charges were filed a month before the previous trial ended, Scrushy's attorneys accused prosecutors of filing charges as retaliation for Scrushy's acquittal.[7] Scrushy pleaded not guilty to all charges, but was convicted along with Siegelman in June 2006.[6][8]

On May 7, 2009, Scrushy was transferred from the Texas jail where he had been incarcerated and placed in the custody of the Shelby County Jail in Columbiana, Alabama.[9] Scrushy was returned to Alabama in order to testify in a new civil trial in the Jefferson County Circuit Court brought against him by shareholders of HealthSouth who sought damages related to Scrushy's trial and conviction.[10] On June 18, 2009, Judge Allwin E. Horn ruled that Scrushy was responsible for HealthSouth's fraud, and ordered him to pay $2.87 billion.[11] On July 25, 2012, Scrushy was released from federal custody.[12][13]

Early life and background

Richard M. Scrushy was born in August 1952 in Selma, Alabama.[1] The son of a middle-class family, his father, Gerald Scrushy, worked as a cash register repairman and his mother, Grace Scrushy, worked as a nurse and respiratory therapist.[1][14] At an early age, Scrushy taught himself to play the piano and guitar and was earning money doing odd jobs by the time he was twelve years old.[1] Scrushy, who then went by his middle name Marin, attended school until he was 17.[14] He dropped out prior to graduating from Parrish High School and married.[1]

Scrushy soon found himself living in a Selma trailer park and working manual labor jobs to support his family.[1][3][15] After a run-in with a boss, Scrushy quit his job hauling cement and decided to return to school.[3] He earned his GED and, at his mother's advice, began studying respiratory therapy at Wallace State Community College.[16] After a year at Wallace State, Scrushy transferred to Jefferson State Community College and later entered the respiratory therapy program at the University of Alabama at Birmingham (UAB).[14][16] Upon graduating from UAB's program, Scrushy was offered a position teaching at the university, where he was promoted to director during his two-and-a-half-year tenure.[14][16] Scrushy divorced his wife, with whom he had two children, and took a position teaching at the Wallace State campus in Dothan.[14] There, Scrushy met and married his second wife, Karen Brooks.[14] The two had four children before they divorced in 1996.[14][17]

In early June 1997, Scrushy married Leslie Anne Jones in Jamaica, with guests such as Martha Stewart attending. The group met at the HealthSouth Hangar at the Birmingham International Airport and boarded a chartered Boeing 727 to Jamaica.[18] Together Richard and Leslie have had three children.[17]

Career and HealthSouth
The headquarters of HealthSouth Corporation in Birmingham, Alabama

In the late 1970s, following his time teaching at UAB and Wallace State, Scrushy was offered a position with Lifemark Corporation, a Houston, Texas-based health care company.[3] Within a few years of being hired at Lifemark, Scrushy was part of a $100 million operation that included the pharmacy, physical rehabilitation, and hospital acquisition divisions.[19] While working for Lifemark, Scrushy moved to St. Louis, Missouri, where he worked as the regional director of the respiratory therapy division.[2] He then moved to Houston where he became the company's chief operating officer.[2]

Still working for Lifemark, Scrushy devised a plan for an outpatient diagnostics and rehabilitative health clinic chain.[3] He presented the plan to Lifemark, but the company was unable to act on it due to a company merger that was already underway with American Medical International.[3] Scrushy left Lifemark in 1983 and founded Amcare, Inc within a year.[20] The new company opened its first facility in Little Rock, Arkansas, and had initial capital between $50,000-$70,000.[14][21] With the assistance of four partners from Amcare Inc. and a one million dollar investment by Citicorp Venture Capital, Scrushy took the quickly growing company and founded HealthSouth Corporation in 1984.[2][16][19] Two years after its founding, HealthSouth became a publicly traded company.[21] The next year, HealthSouth expanded into two new fields, worker's compensation and sports medicine, allowing the company to double its earnings and obtain assets close to $100 million.[2] By the early 1990s, the company had expanded even more, with facilities in each of the 50 U.S. states and revenues in excess of $181 million.[21]

Over the next decade, HealthSouth's sports medicine programs received international attention by being linked to star athletes including Bo Jackson, who served as the president of HealthSouth's Sports Medicine Council;[22] Roger Clemens;[23] Jack Nicklaus,[23] Kyle Petty;[24] Michael Jordan;[25] Shaquille O'Neal,[25] and Lúcio Carlos Cajueiro Souza.[25] At its height, HealthSouth employed more than 50,000 physicians, was the "nation's largest provider of outpatient surgery and rehabilitative and diagnostic healthcare services", and had over 2,000 facilities in the United States, Puerto Rico, Australia, and the United Kingdom.[26] HealthSouth facilities worldwide saw more than 120,000 patients daily, and with earnings around $106 million in 1997, Scrushy was the third-highest-paid CEO in the U.S.[26][27]

Although HealthSouth grew tremendously throughout the 1990s, becoming the largest comprehensive rehabilitative services company in the U.S.,[27] ethical and financial questions began to arise as early as 1989.[21] An internal auditor alleged that he was fired for drawing attention to HealthSouth's financial problems and that he was pressured to meet certain earnings targets.[21] Two years later, in 1991, HealthSouth was accused by Medicare of illegally adding costs to reports for outpatient physical therapy and inpatient rehabilitation admissions at the corporation's Bakersfield Rehabilitation Hospital.[21] In 1998, Medicare changed its funding arrangements in an attempt to reduce exploitation and payments by $100 billion.[28] Scrushy insisted that the change would not affect HealthSouth's bottom line but profits dropped by 93 percent by the end of the year.[28] Around this same time, HealthSouth began facing additional accusations of fraud.[28] An investigation by the insurance company Blue Cross and Blue Shield of Alabama determined that HealthSouth had "improperly billed Medicare for therapy by students, interns, athletic trainers, and other unlicensed aides".[28]

Additional lawsuits alleged HealthSouth had committed widespread abuse of Medicare by "billing for services it never provided, delivering poor care, treating patients without a formal plan of care, and using unlicensed therapists".[28] In March 2003, the U.S. Securities and Exchange Commission (SEC) filed a civil suit against Scrushy and HealthSouth alleging the company had falsified at least $2.7 billion worth of profit between 1996 and 2002.[29] HealthSouth agreed to pay the United States government $325 million on December 30, 2004, in order to "settle allegations that the company defrauded Medicare and other federal healthcare programs".[30]

Birmingham criminal trial
United States of America v. Richard M. Scrushy, a 36-page indictment

On February 6, 2003, the Federal Bureau of Investigation (FBI) announced that it had begun a criminal investigation relating to the "trading of shares of the HealthSouth Corporation" and possible securities law violations.[31] A criminal complaint was filed by the FBI against HealthSouth's chief financial officer, Weston Smith, and civil charges were brought against Scrushy by the SEC.[4] Scrushy became the first CEO to be tried under the Sarbanes–Oxley Act when he was indicted by the U.S. Department of Justice in United States of America v. Richard M. Scrushy on November 4, 2003.[32][33][34]

Scrushy's initial charges included 85 counts of conspiracy, money laundering, securities fraud, and mail fraud, but he was ultimately indicted with just 36 counts.[5][35] In the indictment, Scrushy was accused of using intimidation, threats, and cash payments to coerce top HealthSouth executives into committing fraud.[36] These top executives called themselves "The Family"[37] and referred to their creative accounting as "filling the gap".[36] The group attempted to hide the false earnings by illegally inflating balances of accounts such as fixed assets and estimated insurance reimbursements.[36] Despite multiple chief executives testifying against Scrushy, prosecutors were unable to produce any material evidence that he had been involved in the fraudulent accounting.[36]

During the trial, Scrushy defended himself both inside and outside the courtroom.[36] Scrushy was interviewed by Mike Wallace for a 60 Minutes segment called "Cooking The Books",[38] began hosting a Christian television show with his wife called Viewpoint, backed a citywide 40-day prayer movement referred to as "City, thou art loosed", and joined the predominantly African-American Guiding Light Church.[39] These actions were seen as an attempt to sway potential jurors, since 70 percent of Birmingham's population, and eleven of the eighteen jurors, were African American.[40][41] Following more than a month of deliberations, Scrushy was acquitted of all charges on June 28, 2005.[5]

Montgomery criminal trial

On October 26, 2005, four months after his acquittal in Birmingham, Scrushy was indicted by a federal grand jury in Montgomery.[7] The indictment included 30 counts of racketeering, money laundering, extortion, obstruction of justice, and bribery of Alabama Governor Don Siegelman.[6][7] Prosecutors claimed that Scrushy had agreed to pay over $500,000 of Siegelman's debt, which he accumulated during a failed attempt to bring a state lottery to Alabama, in exchange for a seat on the Certificates of Need Review Board.[8] The board serves the state by reviewing hospitals and approving their construction.[7][8] Although the new charges were filed a month before the previous trial ended, Scrushy's attorneys accused prosecutors of filing charges as retaliation for Scrushy's acquittal.[7] Scrushy and Siegelman pleaded not guilty to all charges, but they were both convicted following a trial that lasted approximately six weeks.[6][8] Scrushy was convicted of bribery, conspiracy, and mail fraud, while Siegelman was convicted of bribery, conspiracy, mail fraud, and obstruction of justice.[8]

While awaiting sentencing, on March 29, 2007, Scrushy's probation officer filed a report claiming that Scrushy had violated the conditions of his bond by leaving Walt Disney World in Orlando, Florida and traveling to Palm Beach, where he boarded a yacht and sailed to Miami.[42] The probation officer suggested that Scrushy should be placed under house arrest and that he be required to wear an electronic monitoring device at all times.[42] United States Magistrate Judge Charles Coody warned Scrushy that he "would not tolerate any future deviations from the requirements the court has placed on" him and ruled that Scrushy must wear a GPS tracking device anytime he travels outside of Alabama.[43][44]

On June 28, 2007, Scrushy was sentenced to six years and ten months in a federal prison, ordered to pay $267,000 in restitution to United Way of Alabama, three years' probation, and a fine of $150,000.[45] Scrushy is also expected to personally pay for his time in prison and perform 500 hours of community service.[45][46] Siegelman was sentenced on the same day to seven years and four months in prison, restitution of $181,325 to the state, three years' probation, a $50,000 fine, and 500 hours of community service upon his release.[45][46] U.S. District Judge Mark Fuller would later rule, however, that Sieglman would not be required to pay the $181,325 in restitution.[47] The restitution was based on debts accumulated by the State of Alabama during a fraudulent warehouse deal, but Siegelman was acquitted on charges related to the deal.[47] Upon sentencing, Scrushy and Siegelman were taken into custody and transported to a federal prison in Atlanta, Georgia, where they briefly shared a cell.[47][48]

Appeal

Following the trial and conviction, Scrushy, Siegelman, and the prosecutors all indicated they would appeal.[49][50] Scrushy and Siegelman vowed to appeal their convictions and sentences, while the prosecution announced its desire to appeal a judge's decision to remove charges of perjury from Scrushy's indictment.[50] Prosecutors quickly dropped their appeal, and U.S. Attorney Alice Martin indicated they had reconsidered.[50]

Awaiting appeal, Scrushy was briefly transported to a transfer site for inmates in Oklahoma City before being sent to his permanent location at a low-security federal prison in Beaumont, Texas.[48] Scrushy filed a request with the 11th U.S. Circuit Court of Appeals, asking to be released on appeal bond.[51] The 11th US Circuit Court of Appeals rejected Scrushy's request to be released on bond, citing an earlier ruling written by U.S. District Judge Mark Fuller.[52] The ruling was issued while Scrushy was on bond awaiting sentencing, and deemed him a flight risk.[52] Scrushy again filed for release in February and May 2008 but both requests were denied.[53][54]

In March 2009, a panel of three judges from the 11th U.S. Circuit Court upheld all charges against Scrushy and dismissed two of the seven charges against Siegelman.[55] A further appeal for a full court review of the case was also denied by the 11th U.S. Circuit Court of Appeals on May 15, 2009.[55] Scrushy appealed to the U.S. Supreme Court.[55] On June 29, 2010, the Supreme Court issued an order directing the appeals court to review the case in light of their (Supreme Court's) ruling the previous week on the "honest services" fraud statute.[56] On June 4, 2012, the Supreme Court rejected Scrushy's appeal, allowing his public corruption and bribery convictions to stand.[57][58]

Birmingham civil trial

Scrushy was returned to Alabama on May 7, 2009, in order to testify in a new civil trial in a Birmingham court.[9] Former HealthSouth investors had sued him seeking recompense for money lost due to the fraud of which Scrushy was acquitted in 2005.[59] While opposing counsel claimed Scrushy was a "hands-on manager who treated the company as a personal piggy bank," he continued to assign blame to his subordinates and maintain that he did nothing wrong.[59] Closing arguments were heard in the trial on May 27, 2009.[60] On June 18, 2009, Judge Horn ordered Scrushy to pay $2.87 billion in damages.[61] Judge Horn stated, "Scrushy knew of and actively participated in the fraud" and referred to Scrushy as the "CEO of the fraud".[11] As expected,[62] Scrushy appealed the judgment to the Alabama Supreme Court. On January 28, 2011, Scrushy lost his appeal of the civil verdict.[63]

Release

According to the Federal Bureau of Prisons website, the 59-year-old Scrushy was moved in April 2012 from the federal prison in Beaumont, Texas into the supervision of the community corrections management field office in San Antonio.[64] Following his move to a halfway house, Scrushy was moved to home confinement, and then, on July 25, 2012, was released from federal custody.[12][13]

See also

Notes
  1. Matulich 2008: 337
  2. "Richard Scrusy Biography". A&E Television Networks. Retrieved 2009-05-19.
  3. Matulich 2008: 338
  4. Romero, Simon (2003-03-21). "The Rise and Fall of Richard Scrushy, Entrepreneur". The New York Times. Retrieved 2009-05-19.
  5. Farrell, Greg (2005-06-28). "Scrushy acquitted of all 36 charges". USA Today. Retrieved 2009-05-19.
  6. Whitmire, Kyle (2005-10-29). "Scrushy Pleads Not Guilty to Bribery and Mail Fraud". The New York Times. Retrieved 2009-05-19.
  7. Freudenheim, Milt (2005-10-27). "Scrushy Is Indicted on Charges of Bribery". The New York Times. Retrieved 2009-05-19.
  8. Whitmire, Kyle (2006-06-30). "Ex-Governor and Executive Convicted of Bribery". The New York Times. Retrieved 2009-05-19.
  9. Averette, Justin (2009-05-08). "Scrushy back in Shelby County Jail". Shelby County Reporter.
  10. Bauerlein, Valerie (2009-05-20). "Scrushy to Face Shareholders". Wall Street Journal. Retrieved 2009-05-21.
  11. Davidson, Laurence Viele; David, Beasley (2009-06-18). "HealthSouth's Scrushy Liable in $2.88 Billion Fraud (Update 3)". Bloomberg. Retrieved 2009-06-18.
  12. Lyman, Brian (2012-07-26). "Scrushy released from custody". Montgomery Advertiser. Archived from the original on July 29, 2012. Retrieved 2012-08-02.
  13. Hutchens, Aaron (2012-07-26). "Richard Scrushy released from federal custody". Associated Press. Retrieved 2012-08-02.
  14. Heylar, John; Cherry, Brenda; Neering, Patricia (2003-07-07). "The Insatiable King Richard He started as a nobody. He became a hotshot CEO. He tried to be a country star. Then it all came crashing down. The bizarre rise and fall of HealthSouth's Richard Scrushy". Fortune Magazine. Retrieved 2009-05-19.
  15. Jennings 2006: 214
  16. "A Biographical Sketch: Richard Scrushy and HealthSouth". RichardMScrushy.com. Archived from the original on 2011-07-15. Retrieved 2009-05-19.
  17. Guyon, Janet (2006-05-18). "Richard Scrushy's Chief Believer". Washington Post. Retrieved 2009-05-30.
  18. Bartlett 2005: 81
  19. Burke, Monte (2001-01-21). "Back To Life". Forbes. Retrieved 2009-05-19.
  20. Mackay, Steven (2003-04-25). "HealthSouth's first CFO charged; hospitals may be sold". Birmingham Business Journal. Retrieved 2009-05-31.
  21. Matulich 2008: 316
  22. Flatter, Ron. "Bo knows stardom and disappointment". ESPN.com. Retrieved 2009-05-19.
  23. Freudenheim, Milt (2005-01-27). "Vital Signs Return to HealthSouth". The New York Times. Retrieved 2009-05-19.
  24. "Satisfied Darrell Waltrip willing to gamble on Monte Carlo's stability". Atlanta Journal-Constitution. 1995-01-29.
  25. Jennings 2006: 31
  26. "WebMD, Healtheon and HealthSouth to Co-Market and Connect". HLTH Corporation. 1999-09-14. Retrieved 2009-05-19.
  27. Matulich 2008: 317
  28. Matulich 2008: 318
  29. Matulich 2008: 320
  30. "HealthSouth to pay United States $325 million to resolve Medicare fraud allegations". United States Department of Justice. 2004-12-30. Retrieved 2009-05-20.
  31. Freudenheim, Milt (2003-02-07). "F.B.I. Is Investigating HealthSouth Trades". The New York Times. Retrieved 2009-05-19.
  32. Freudenheim, Milt (2003-11-05). "Former HealthSouth Chief Indicted by U.S." The New York Times. Retrieved 2009-05-19.
  33. Tarantino 2006: 111
  34. "HealthSouth Founder and Former CEO Richard Scrushy Charged in $2.7 billion Accounting and Fraud Conspiracy". US Department of Justice. 2003-11-04. Retrieved 2009-05-22.
  35. Johnson, Carrie (2003-11-05). "HealthSouth Founder Is Charged With Fraud". Washington Post. Retrieved 2009-05-19.
  36. Markham 2005: 361
  37. Matulich 2008: 349
  38. Leung, Rebecca (2005-05-22). "Cooking The Books". CBS. Retrieved 2009-05-21.
  39. Farrell, Greg (2004-10-26). "Former HealthSouth CEO Scrushy turns televangelist". USA Today. Retrieved 2009-05-21.
  40. Romero, Simon (2005-02-17). "Will the Real Richard Scrushy Please Step Forward; Race, Religion and the HealthSouth Founder's Trial". The New York Times. Retrieved 2009-05-21.
  41. Markham 2005: 362
  42. "Scrushy May End Up Under Home Confinement". WSFA12 News. 2007-03-29. Retrieved 2009-05-23.
  43. Johnson, Bob (2007-04-10). "Scrushy remains free on bond". USA Today. Retrieved 2009-05-23.
  44. Whitmire, Kyle (2007-04-15). "OPENERS: SUITS; Did Anyone Ask About a Yacht?". The New York Times. Retrieved 2009-05-23.
  45. Sims (2007-06-28). "Siegelman, Scrushy taken into custody". Birmingham News. Retrieved 2009-05-22.
  46. Johnson, Bob (2008-06-28). "Siegelman, Scrushy Get Prison Terms". Fox News. Retrieved 2009-05-22.
  47. Johnson, Bob (2007-07-10). "Siegelman not ordered to pay agency". Tuscaloosa News. Retrieved 2009-05-23.
  48. "Scrushy moved out to Oklahoma City site". The Oklahoman. 2007-07-18. Retrieved 2009-05-22.
  49. Johnson, Bob (2007-06-29). "Siegelman, Scrushy to appeal sentences". USA Today. Retrieved 2009-05-22.
  50. "U.S. Drops Scrushy Appeal". Los Angeles Times. 2005-07-14. Retrieved 2009-05-22.
  51. Johnson, Bob (2007-10-04). "Judge denies former Ala. gov's release". Boston Globe. Retrieved 2009-05-22.
  52. Johnson, Bob (2008-05-10). "Scrushy Makes Another Prison Release Request". Opelika-Auburn News. Archived from the original on 2008-07-20. Retrieved 2009-05-22.
  53. "Scrushy Offers To Post Most Assets For Prison Release On Appeal". NBC13 News. 2008-02-16. Archived from the original on 2013-06-28. Retrieved 2009-05-22.
  54. Chandler, Kim (2008-05-10). "Richard Scrushy asks federal court for the third time to free him from prison while he appeals conviction". Birmingham News. Archived from the original on 2011-06-09. Retrieved 2009-05-22.
  55. Chandler, Kim (2009-05-15). "U.S. appeals court won't hear Siegelman, Scrushy cases". Birmingham News. Retrieved 2009-05-22.
  56. "High court wants Scrushy conviction reviewed".
  57. Mears, Bill (2012-06-04). "High court allows Siegelman, Scrushy corruption convictions to stand". CNN. Archived from the original on 2012-06-22. Retrieved 2012-08-02.
  58. Murphy, Elizabeth (2012-06-04). "High Court Rejects Appeal of Ex-Alabama Governor, Hospital Executive". Main Justice. Archived from the original on 2012-06-08. Retrieved 2012-08-02.
  59. Esterl, Bill (2009-05-08). "Scrushy Again Blames Underlings for Fraud". Wall Street Journal. Retrieved 2009-07-07.
  60. Hubard, Russell (2009-05-27). "Fate of Richard Scrushy's personal fortune now in the hands of Jefferson County Circuit Judge Allwin Horn". Birmingham News. Retrieved 2009-05-30.
  61. Hubard, Russell (2009-06-18). "Judge: Richard Scrushy is responsible for HealthSouth fraud". Birmingham News. Retrieved 2009-05-30.
  62. Baurlein, Valerie (2009-06-18). "Scrushy Found Liable in HealthSouth Shareholder Suit". Wall Street Journal. Retrieved 2009-06-18.
  63. Beasley, David (2011-01-28). "Ex-HealthSouth CEO Scrushy Loses Appeal Of $2.88 Billion Civil Judgment". Bloomberg. Retrieved 2012-08-02.
  64. Faulk, Kent (2012-04-15). "Former Healthsouth CEO Richard Scrushy moved from Texas prison into halfway house". Birmingham News (Alabama, USA). Retrieved 2012-06-01.

References
  • Matulich, Serge; Currie, David (June 2008). "Richard Scrushy: The Rise and fall of the King of Health Care". Handbook of Frauds, Scams, and Swindles: Failures of Ethics in Leadership (Illustrated ed.). CRC Press. pp. 315–351. ISBN 978-1-4200-7285-3. OCLC 214285931.
  • Jennings, Marianne (August 2006). "Innovation Like No Other". The Seven Signs of Ethical Collapse (annotated ed.). New York: St. Martin's Press. pp. 214–216. ISBN 0-312-35430-4. OCLC 63297926.
  • Tarantino, Anthony (April 2006). "Civil and Criminal Penalties for Noncompliance". Manager's Guide to Compliance (illustrated ed.). Hoboken: John Wiley and Sons. p. 111. ISBN 0-471-79257-8. OCLC 62421142.
  • Markham, Jerry (December 2005). "Full Disclosure Fails". A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform (illustrated ed.). Armonk, N.Y: M.E. Sharpe. pp. 360–364. ISBN 0-7656-1583-5. OCLC 58536658.
  • Bartlett, Donald (October 2005). "Wall Street Medicine". Critical condition: how health care in America became big business--and bad medicine. New York: Broadway Books. p. 81. ISBN 0-7679-1075-3. OCLC 62260293.

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