Healthcare industry executives said they were stunned by yesterday's acquittal in the criminal trial of Richard Scrushy, founder and former chief executive officer of Birmingham, Ala.-based HealthSouth Corp.
All five of the company's chief financial officers and about 10 other executives under Scrushy -- who faced 36 counts -- testified that he directed subordinates to overstate HealthSouth's revenue to meet Wall Street expectations. Still, that wasn't enough to convince a jury in U.S. District Court, Birmingham, that Scrushy, 52, knew the company's income was inflated by some $2.6 billion. Jurors deliberated 21 days before announcing the verdict.
"I felt that based on what I read -- and I didn't have what the jury had -- that it seemed like the government had a strong case," said Richard Clarke, president and chief executive officer of the Healthcare Financial Management Association.
Charlie Russell, a spokesman for Scrushy, said his next step will be to seek restitution from HealthSouth. Scrushy already has filed two lawsuits against the company: One seeks legal fees from the company and the other was filed because the company has barred Scrushy, who remains a board member, from board meetings.
Scrushy in the past has said he would like to work with HealthSouth again. But the company sent out a news release minutes after the verdict that quoted HealthSouth Chairman Bob May as saying, "Under no circumstances will Mr. Scrushy be offered any position within the company by this management team or by this board of directors." The release added that Scrushy's contract was voided in March 2003 when he was terminated.
HealthSouth directors will likely face more questions about Scrushy's future with the company on Wednesday when they hold an investor meeting. HealthSouth filed documents with the Securities and Exchange Commission Monday that restated past earnings, lowering revenue numbers by $827 million in 2001 and $697 million in 2000.
The earnings restatement makes the verdict even more difficult to understand, said Robert Broadway, vice president of corporate strategy for Boynton Beach, Fla.-based Bethesda Healthcare System. "There might be a little injustice," he said.
What seemed to be an overwhelming amount of testimony against Scrushy was a motivating factor in the government's decision to make the former healthcare executive the first test case of the federal Sarbanes-Oxley Act of 2002, said Steven Smith, a partner with the law firm Bryan Cave. He said he believes this case likely will lead to some internal debate within the Justice Department on what threshold is adequate for determining whether enough evidence exists to convict an executive on Sarbanes-Oxley charges.