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Witness: Scrushy Had Most to Gain in Fraud
Monday May 9, 3:23 pm ET
By Jay Reeves, Associated Press Writer
Defense Witness Says Fired CEO Scrushy Had Most to Gain - and Lose - From HealthSouth Fraud


BIRMINGHAM, Ala. (AP) -- Richard Scrushy had more to gain than anyone else from the huge fraud at HealthSouth Corp., but he also had the most to lose, a defense expert testified under cross-examination Monday at the fraud trial of the fired CEO.
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After hearing estimates from defense consultant Tim Renjilian that Scrushy had $136 million in HealthSouth stock and options at the end of 1995 shortly before the accounting scam began, prosecutor Colleen Conry showed jurors a chart depicting the roller-coaster ride of the company's stock in a bright blue graph.

After a series of sales and purchases, Scrushy had options worth more than $10 million at the end of 1999, about 3 1/2 years into the fraud, she said. Conry brought out that Scrushy had a larger share in HealthSouth than anyone else.

"At this time no individual shareholder stands to make more than Mr. Scrushy if the stock value goes up, right?" Conry said.

"That's right. He had placed a large bet on the company," said Renjilian, in his third day on the stand.

But earlier, Renjilian agreed that HealthSouth stock "dropped like a rock" when the company expressed uncertainty about future earnings. At that point, Scrushy lost more than anyone else, testimony showed.

Scrushy is charged with directing a conspiracy to overstate HealthSouth earnings by some $2.7 billion from 1996 through 2002. Prosecutors claim he made some $249 million from bonuses, stock sales and salary because of the scheme.

The defense agrees that a fraud occurred, but blames it on 15 former HealthSouth executives who pleaded guilty and agreed to cooperate with prosecutors. Aides lied to Scrushy for years to conceal the conspiracy, the defense contends.

Conry got the expert to concede that Scrushy benefited from inflated stock prices during the earnings overstatement, but they disagreed on whether the fraud was a "pump and dump" scheme.

Renjilian said "even Mr. Scrushy" made money from the long-running fraud because it kept HealthSouth share prices artificially high for years.

Responding to a follow up question by U.S. District Judge Karon Bowdre, Renjilian said investors outside the company profited in the same way.

Renjilian testified that Scrushy's stock purchases and sales were "inconsistent with a pump and dump scheme" where someone is trying to drive up share prices quickly and then sell them to make a huge profit.

But Conry pointed out that the HealthSouth fraud lasted for years. Scrushy sold almost 4 million shares when HealthSouth stock was priced at more than $30 a share in 1997, when previous evidence showed the fraud was in its second year, she said.

"Isn't selling near the very top of the market nearly 4 million shares consistent with a pump and dump?" Conry said.

Renjilian said the increase in HealthSouth share prices around that time was in line with the overall market, and he said Scrushy could have sold even more shares but didn't.

Scrushy is the first chief executive officer accused of violating the Sarbanes-Oxley corporate reporting law, passed in 2002. He also is charged with conspiracy, fraud, money laundering and obstruction of justice.

If convicted, Scrushy could get what amounts to a life sentence and be ordered to forfeit some $278 million in assets.





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