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HLSH , MSFT ,,, Defense Rests Without Scrushy Taking Stand
Thursday May 12, 1:49 am ET
By Jay Reeves, Associated Press Writer
Defense Rests Without Fired HealthSouth Chief Richard Scrushy Taking Stand in Fraud Trial


BIRMINGHAM, Ala. (AP) -- Lawyers for fired HealthSouth Corp. CEO Richard Scrushy rested their case after calling 21 witnesses -- but not Scrushy -- to support defense claims that the fired executive was innocent in a $2.7 billion scheme to overstate earnings.
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The defense rested Wednesday, and prosecutors did not call any witnesses to counter the defense case.

U.S. District Judge Karon Bowdre told jurors to return Monday for closing arguments and instructions on the law. She was scheduled to rule Thursday on defense motions to dismiss some of the charges against Scrushy.

Lawyers said deliberations are set to begin Tuesday.

The defense blames the fraud on the 15 former HealthSouth executives who pleaded guilty, including all five finance chiefs who served under Scrushy, the company's primary founder.

Prosecutors contend Scrushy led those executives in a conspiracy to overstate HealthSouth earnings for seven years to make it appear the medical rehabilitation chain was meeting Wall Street forecasts. Scrushy collected about $249 million from the accounting scam, a prosecution witness testified.

Outside court Wednesday, Scrushy said the prosecution's entire case was built on "a handful of people who admitted they were involved in the fraud."

"I can't believe that in this country someone could be convicted with not one shred of evidence," he said.

The decision on whether Scrushy should testify was a calculated gamble either way: Without him taking the stand, jurors won't get to hear his explanation of how he failed to detect a fraud the defense says went on for years without his knowledge.

But Scrushy could have been hit with a blistering cross-examination, including questions about secretly recorded tapes that prosecutors contend prove he knew of the crime.

Larry Soderquist, a securities law expert who has followed the trial, said the fear of what could happen under prosecution questioning was likely what kept Scrushy off the stand.

"His lawyers must have had a very good reason for not wanting him to testify," said Soderquist, director of the Corporate and Securities Law Institute at Vanderbilt University in Nashville, Tenn.

Scrushy attorney Donald Watkins said the defense team "unanimously concluded that we are comfortable with where the case stands and there is no need for further witnesses."

The final defense witness compared Scrushy to Michael Jordan and Bill Gates as the defense tried to show the fired CEO was worth the millions he made while building HealthSouth into an industry leader -- despite the huge fraud he is accused of leading.

Under questioning from defense attorney Art Leach, defense expert Wayne Guay said Scrushy was due multimillion-dollar compensation packages even after HealthSouth stock prices tanked in the late 1990s, just like Jordan was still valuable on the backside of his NBA career.

Guay also testified that as HealthSouth's primary founder, there wasn't anything wrong with Scrushy selling stock and exercising options in the rehabilitation chain -- the same way Gates makes "hundreds of millions" annually from stock in Microsoft Corp.

"Most founders do tend to have quite a lot of stock and options holdings," said Guay.

The comparisons came under sharp attack from prosecutor Colleen Conry on cross-examination, particularly the one to Jordan.

With a graph of HealthSouth's share prices projected before jurors, Conry pointed out that the stock dropped well below the S&P 500 average in 1998, two years after the fraud began, and never recovered.

"Doesn't that mean Mr. Scrushy really isn't Michael Jordan?" she asked. "Would Michael Jordan be above the S&P 500, especially if he was on steroids?"

Scrushy, who had as much as $250 million in HealthSouth stock and options at one time during the earnings overstatement, made more in total compensation than all but about 17 percent of chief executives of companies listed in the S&P 500 during the period, Guay said.

But Guay told the mostly middle-class jury that the best executives earn the biggest dollars.

Referring to HealthSouth's rise from a startup firm in 1984 to an industry leader by the '90s, Guay said it was unusual for a company to become a "superstar" as quickly as HealthSouth, which Scrushy helped found.

Free on $10 million bond, Scrushy is the first chief executive tried under the Sarbanes-Oxley corporate reporting law, passed in 2002 in response to a string of corporate frauds. He also is charged with conspiracy, fraud, money laundering and obstruction of justice.

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





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