Scrushy fraud trial opens in Ala.

THE BALTIMORE SUN

BIRMINGHAM, Ala. - HealthSouth Corp. founder and fired chief executive Richard M. Scrushy was a "cunning" and "hands-on leader" who directed a $2.7 billion accounting fraud and enriched himself as he fooled investors, a prosecutor told jurors yesterday at the start of Scrushy's fraud trial.

"You're going to hear evidence that Richard Scrushy knew about the conspiracy, that he participated in the conspiracy and that he profited from the conspiracy," U.S. Attorney Alice H. Martin told jurors in her opening statement.

Scrushy, 52, inflated income by $2.7 billion from 1996 to 2002, laundered money to finance a lavish lifestyle and lied to investigators examining his stock sales, Martin said.

He is the first person charged under the Sarbanes-Oxley Act, which requires executives to verify accuracy in financial statements.

Defense attorney James Parkman countered that Scrushy had no knowledge of a fraud conducted by 15 people who pleaded guilty, including five former finance chiefs. Some of them were part of a closed group known as "the family," which cooked the books and betrayed Scrushy by lying to him, Parkman told the jury.

"This was no ordinary family," Parkman said. "These are all members of the group that developed, devised and did this fraud." They did not commit crimes to help Scrushy, he said. Rather, Parkman said, "They did it for themselves. They had ideas of their own."

Parkman said the fraud was run by William Owens, a former finance chief who pleaded guilty and secretly recorded Scrushy for the FBI on March 17 and 18, 2003, just before agents raided HealthSouth's headquarters in Birmingham. Parkman promised to attack the credibility of Owens and other cooperators, saying they tailored accounts to please prosecutors in a bid for leniency.

A 58-count indictment charges Scrushy with conspiracy, money laundering, perjury, obstructing justice, false statements, securities fraud, mail fraud and wire fraud. If convicted, he faces dozens of years in prison.

The trial began almost two years after the accounting scandal erupted. The Securities and Exchange Commission sued Scrushy and HealthSouth, which hired turnaround managers and averted bankruptcy. In May 2004, the company said a forensic accounting review found that the fraud was "enormous and complex."

Scrushy, a former respiratory therapist, built HealthSouth into the largest U.S. operator of rehabilitation hospitals. Prosecutors seek forfeiture of $279 million in Scrushy assets, including mansions, luxury cars, planes, jewelry and a yacht.

U.S. District Judge Karon O. Bowdre, who is presiding, urged the 12 jurors and six alternates to focus on the evidence and testimony, not Scrushy's lifestyle.

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