For the first time since federal investigators exposed a massive accounting fraud at HealthSouth six years ago, the former CEO Richard M. Scrushy testified in court today, telling his version of what happened at the company. It is the first public appearance Scrushy has made since being sentenced to almost seven years in prison for bribing former Alabama Gov. Don Siegelman.
In a civil lawsuit, called a derivatives action, shareholders have accused Scrushy of leading the $2.7 billion fraud at HealthSouth and attributed other losses at the company to reckless and wasteful leadership. That fraud has cost the company more than $3 billion to clean up, plaintiffs’ witnesses have testified.
Scrushy appeared in court in a blue suit and red tie with his hair a little more closely kempt than when he was a free man. Other than the chains around his ankles, which clinked when he walked, he looked little different than when he stood at the helm of the rehab hospital empire.
Throughout the testimony Wednesday morning, Scrushy and his lawyer, Jim Parkman, built an alternative narrative to the one various investigators, prosecutors and civil plaintiffs have told over the last six years. Scrushy said was duped by subordinates at the company who hid the $2.7 billion fraud among disparate accounting systems and behind fake numbers.
Six former HealthSouth executives, including all five of the chief financial officers who served under Scrushy, have testified that Scrushy knew about the fraud and approved of it. Scrushy tells a different story, saying he thought the company had as much as $300 million of cash on hand that it could use for a leverage buyout if necessary.
“At no time ever did they pull me aside and say we didn’t have it,” Scrushy said.
During Scrushy’s tenure at the company HealthSouth bought numerous smaller hospital chains and rehabilitation clinics. The mergers caused the company to have a multitude of different accounting computer systems. Consolidating financial reports on a weekly or even monthly basis had become nearly impossible, Scrushy says he was told.
“I had no knowledge on any financial fraud at HealthSouth,” Scrushy said.
Scrushy’s testimony conflicts with what several other executives have said in court. CFOs Aaron Beam, Bill Owens and Mike Martin have testified that they gave Scrushy the real numbers and that they discussed the fraud with him.
Scrushy said he wanted to consolidate the accounting systems and build an intranet system within the company to automate its various divisions. Then-CFO Bill Owens shot down those ideas, saying they were too expensive and wasteful, but he really did so because they would have exposed the fraud he didn’t know about, Scrushy said.
Direct examination of Scrushy is expected to last the rest of this week.