Dear Mr Whitmire,

This past Monday the Securities and Exchange Commission announced it had settled its civil fraud lawsuit against Richard Scrushy.

Jack Worland, the SEC trial lawyer on the case, said “[the settlement] fulfills everything the commission could hope to get” and “it achieves the commission’s objective of defending the public’s interest.”

The SEC lawsuit stems from the massive accounting fraud that took place at HealthSouth Corporation over a period of at least seven years from 1996 to 2003. The fraud burst in the national and local news when the FBI raided HealthSouth’s offices in March of 2003. In 2003 fourteen officers and employees, including five chief financial officers, pleaded guilty to participating in the fraud. In June of 2005 Scrushy was found not guilty in a criminal trial against him for his alleged role in directing the fraud. In the mind of much of the public, the perception was that the “mastermind” got away with it.

It is turning out that there were Wall Street “masterminds” behind the fraud, and there was a conspiracy of Wall Street investment bankers to perpetrate fraud in and through many corporations in the healthcare industry in order to generate hundreds of millions of dollars of fees and commissions for themselves. This is according to a private civil action of HealthSouth shareholders and bondholders that is pending in the Northern District of Alabama. The information that has been developed about this Wall Street conspiracy is particularly revealed in a July 19, 2006, filing in the Northern District of Alabama of an Amendment to Joint Second Amended Consolidated Class Action Complaint (http://www.blbglaw.com/complaints/HealthSouth-AmendJointSecAmendedCplt.7.19.06.pdf), that amended a Joint Second Amended Consolidated Class Action Complaint (http://www.blbglaw.com/complaints/HealthSouthFactualBasisCplt8.2.04.pdf) that had been previously filed on August 2, 2004.

The picture painted by these documents is that of a virtual Wall Street criminal enterprise, with tentacles reaching out across the country to ensnare many corporations in the healthcare industry and their shareholders and other investors.

Among other things, these documents allege that investment bankers did the following: they coached HealthSouth about how to “bake” earnings by taking a 5% charge whenever HealthSouth did an acquisition; they sought out acquisition candidates for HealthSouth that would be willing to do acquisition transactions with inadequate due diligence in order to accommodate HealthSouth’s problem that it could not withstand due diligence because of its accounting fraud (thereby perpetrating a fraud on shareholders and investors in those other corporations); they knowingly worked with HealthSouth in utilizing acquisition transactions and financial accounting of those transactions to hide HealthSouth’s accounting fraud; they oversaw, orchestrated and scripted HealthSouth’s interface with the investors, lenders, analysts and others in the securities markets in order to keep the HealthSouth fraud from being discovered and keep selling fraudulent securities; they developed an artificial two step procedure for selling HealthSouth securities to the public for the purposes of evading securities law liability of themselves for the HealthSouth fraud; they directed their stock analyst to make “buy” recommendations for HealthSouth stock even though the analyst was saying privately that HealthSouth was a “mess”; they threatened HealthSouth officers with “getting whacked” if they did not continue with the fraud; they deceived their own colleagues in their own investment banking companies about HealthSouth; they helped Scrushy use their fees to pay a $500,000 bribe to Governor Don Siegelman in a convoluted fashion to try to avoid detection.

Whether the investment banker “masterminds” of this Wall Street criminal conspiracy that had tentacles extending far beyond HealthSouth get away with it or not remains to be seen.

Sincerely,

Robert Shattuck
Birmingham, AL