One day after federal prosecutors unsealed an 85-count indictment of HealthSouth Corp. founder Richard Scrushy, new company management says Scrushy himself not only knew about accounting and tax fraud at the company but actively led the deception.
In a hearing before the House Energy and Commerce Committee today, interim HealthSouth Chairman Joel Gordon calls Scrushy the leader of a scheme to inflate company earnings by at least $2.5 billion and overstate the value of HealthSouth?s assets by $800 million.
"As yesterday's indictment of Richard Scrushy, the former chairman and CEO, indicated, Mr. Scrushy, along with former members of management, directed a massive accounting fraud at HealthSouth," Gordon says in the prepared text of his testimony.
Gordon was brought in March 19 after HealthSouth directors suspended Scrushy as the financial irregularities came to light. Scrushy later was fired.
The federal indictment says Scrushy received $267 million from Birmingham, Ala.-based HealthSouth from 1996 through 2002, including $7.5 million in base salary, more than $53 million in bonuses and $206 million in stock options.
Today, lawmakers heard testimony that HealthSouth directors based their decisions on Scrushy's incentive-laden compensation on fraudulent data.
"If the Compensation Committee had known of the fraud, Mr. Scrushy and others would have been terminated immediately and would never have received these salaries, bonuses, and stock options," according to the prepared remarks of Phillip Watkins, M.D., a HealthSouth board member from 1984 until he resigned in February.
Watkins chaired the audit and compensation committee before he left HealthSouth.
One current executive, interim CEO Robert May, does say that an independent investigation authorized by HealthSouth directors last year turned up "no evidence of inappropriate or illegal conduct by Mr. Scrushy connected with his sale of stock."
The Securities and Exchange Commission has sued Scrushy for insider trading, but a judge put that civil case on hold pending the ongoing criminal investigation of HealthSouth.
Scrushy maintains his innocence on all charges.