* Judge leaves 2007 officer and director ban in place
* Scrushy disappointed, to discuss options
* $2.6 billion accounting fraud at HealthSouth
By Jonathan Stempel
Aug 28 A federal judge rejected former
HealthSouth Corp Chief Executive Richard Scrushy's bid
to lift a ban on his serving as an officer or director of a
public company, which was part of his settlement of U.S.
Securities and Exchange Commission charges that he masterminded
a $2.6 billion accounting fraud.
Scrushy, 61, who last year finished nearly five years in
prison in an unrelated bribery case, has contended that the ban
was impeding his ability to return to the healthcare industry,
where he built Birmingham, Alabama-based HealthSouth into a
large medical rehabilitation company.
However, U.S. District Judge Inge Prytz Johnson in
Montgomery, Alabama concluded that Scrushy "benefited greatly
from the fraud, whether he knew about it or not," and that there
would be a "great likelihood" of future misconduct if the ban
"While the court has every confidence in Scrushy that he can
once again create an empire out of nothing, the court also
remains convinced that the temptation of personal enrichment is
too much for him to bear," she wrote in a decision on Tuesday.
The judge added that the ban does not prevent Scrushy from
starting a new company or raising capital, but agreed with the
SEC that he should not raise that capital in public offerings.
HealthSouth, like the SEC, also opposed lifting the ban, who
was released from federal custody in July 2012.
"Life goes on. That's really all I can say. We're
disappointed," Scrushy said in a phone interview on Wednesday.
"I'm meeting with my attorneys and we're reviewing what our
The SEC and HealthSouth did not immediately respond to
requests for comment.
Scrushy has consistently denied doing anything wrong at
HealthSouth and blamed subordinates for its problems. His prison
term stemmed from a 2006 conviction for paying money to former
Alabama Governor Don Siegelman's campaign for a state lottery in
exchange for a seat on a state hospital regulatory board.
DUTY TO KNOW
In 2005, an Alabama jury acquitted Scrushy of criminal
charges that he directed the accounting fraud at HealthSouth.
Two years later, without admitting wrongdoing, Scrushy
resolved the SEC's civil case, which contained the officer and
director ban. That accord gave him the right to ask a federal
judge to lift the ban after five years.
Then in 2009, an Alabama state judge found Scrushy liable
for fraud in a civil, non-jury trial and ordered him to pay
HealthSouth $2.88 billion. Most of that sum has not been paid.
Johnson said the issue of whether Scrushy should have known
about fraud at HealthSouth weighed "heavily" in her decision.
"He had a duty to ensure the accuracy of profit reports
released to Wall Street, he knew of that duty, and he knew the
investing public would rely on those reports in making investing
decisions," she wrote. "Even if the court accepts defendant
Scrushy's suggestion that (others) were the masterminds of the
fraud, it was defendant Scrushy's duty to know."
Scrushy has said the 2010 Patient Protection and Affordable
Care Act, or Obamacare, allows businesses an opportunity to
innovate in healthcare, and he wants to play a role.
"I still think I have a lot to offer a lot of folks," he
said on Wednesday.
The case is SEC v. Scrushy, U.S. District Court, Northern
District of Alabama, No. 03-00615.