June 18, 2009 / 4:53 PM / 9 years ago

Former HealthSouth boss found liable for $2.9 billion

BIRMINGHAM, Alabama (Reuters) - Former HealthSouth Corp boss Richard Scrushy was ordered to pay $2.9 billion on Thursday after a judge found him responsible for an accounting fraud that nearly brought down the hospital chain.

Former HealthSouth Chief Executive Richard Scrushy talks to reporters outside a Birmingham courthouse, May 18, 2005. REUTERS/Julie Hunter

Scrushy, serving a seven-year prison term in a bribery case, was acquitted of criminal charges related to the massive HealthSouth fraud in 2005.

But an Alabama state judge ruled in favor of investors in a civil lawsuit, finding that Scrushy played a key role in the accounting manipulation.

“Scrushy knew of and actively participated in fraud,” state court Judge Allwin Horn said in a written ruling.

The former chief executive, 56, was “very disappointed” by the ruling and will appeal, said his attorney Jack McNamee.

“Scrushy is paying a debt to society that he does not owe. This is not the end but the beginning,” McNamee said.

Last month, Scrushy came to the Jefferson County Circuit Court in leg shackles to testify in the case that was heard by a judge without a jury.

He claimed to have been duped by subordinates and said he had no knowledge of financial problems at HealthSouth.

Judge Horn rejected that argument, which was first used during Scrushy’s criminal trial in 2005. It is unclear how much of the judgment Scrushy could ultimately have to pay.

John Haley, a lawyer for the shareholder plaintiffs, said Scrushy’s net worth was estimated at about $275 million in 2005. Since then, Scrushy has agreed to pay $81 million to settle U.S. Securities and Exchange Commission charges that he directed the fraud, without admitting any wrongdoing.

“He is still worth a substantial amount of money,” said Haley, of law firm Hare Wynn Newell & Newton in Birmingham.

The shareholders’ case was brought on behalf of the company, which said in a statement that it was pleased “justice has been served.” HealthSouth said it would get about 40 percent of any amounts recovered from the lawsuit.

“Although we do not at this time know whether and to what extent the judgment against Mr. Scrushy is collectible, we will pursue collection aggressively,” HealthSouth said.

Its shares closed up 4 percent at $13.01 on the New York Stock Exchange.

Scrushy founded HealthSouth in 1984 and built it into a large rehabilitation medical company. Known for a lavish lifestyle and his role as a Christian minister, he was accused of directing HealthSouth to overstate revenues by at least $2.6 billion between 1996 and 2002.

He was the first chief executive officer to be tried under the Sarbanes-Oxley Act passed to fight corporate corruption after the Enron and WorldCom scandals, but was cleared of all 85 counts.

In 2006, Scrushy and former Alabama Governor Don Siegelman were convicted of bribery in connection with a scheme to get a seat on a hospital regulatory board. Scrushy has served about two years of a seven-year federal prison sentence in Texas.

The case was: Wade C. Tucker and Wendell Cook Testamentary Trust for and on behalf of HealthSouth Corporation versus Richard M. Scrushy and the number was: CV 02-5212.

Additional reporting by Martha Graybow in New York; Editing by Matthew Bigg, Leslie Gevirtz

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