What if they threw a Scrushy trial and nobody came?
On Monday morning, the lawyers in Jefferson County, Ala., Circuit Court outnumbered the media, family and spectators combined. Nothing unusual about that except for the defendant — former HealthSouth CEO Richard M. Scrushy. What would have been a spectacle four years ago is now a loose end to be tied.
A derivatives action on behalf of HealthSouth investors is seeking damages from the former CEO. The lawsuit is a civil case in state court. Scrushy risks paying damages if he loses, but he will not face further time in prison.
The defense has requested a bench trial before a judge but no jury. Instead of jurors, the jury box Monday was filled with plaintiffs’ attorneys. A few of Scrushy’s family and friends attended the first day of trial, but the following of preachers, once known as his Amen Corner, were absent from the courtroom.
Scrushy has been moved back to Birmingham from federal prison in Beaumont, Texas, where he has been serving a seven-year sentence for bribing former Alabama Gov. Don Siegelman. He is expected to testify during the trial.
Plaitiff’s lawyer John Haley argued in opening statements that Scrushy led a $2.64 billion accounting fraud at HealthSouth, a scheme that cost the company another $1.23 billion in fees and legal settlements once the fraud was discovered. Haley likened the case to an automobile accident, where someone has been hurt and the only witnesses are passengers in the car.
“He was the driver of the vehicle that caused the damage,” Haley said.
The passengers in the car, Haley said, were the five former CFOs who have pleaded guilty to participating in the fraud.
Haley covered a lot of familiar ground. He described an accounting fraud that began relatively small in 1996 with a $7 million fudge on the books. By 2003, however, that fraud had ballooned to about $2.7 billion.
Haley blasted Scrushy for using the company for personal reasons. He told Circuit Judge Allwin Horn that Scrushy caused the company to do business with peripheral, related companies he’d set up. Often these ventures resulted in big payments to Scrushy and big losses for HealthSouth. The company wasted money on Scrushy’s music interests, Haley said, including more than $40,000 spent on breast augmentation for Scrushy’s girl band 3rd Faze.
In a flashback that seems surreal even in today’s business climate, the plaintiffs played for the court a clip from Scrushy’s music video, “Honk if You Love to Honky Tonk.” Scrushy paid the band out of HealthSouth funds and flew the band to events as far away as Australia on HealthSouth jets, Haley said.
Scrushy defense lawyer Jack McNamee questioned the credibility of the plaintiffs’ witnesses, in particular the five CFOs.
“They are all self-confessed felons,” McNamee said. “They are all self-confessed liars.”
McNamee argued that Scrushy had no knowledge of the fraud and that Scrushy’s behavior as CEO conflicts with that theory. Scrushy would not have forced out employees who had knowledge of the fraud or tried to open the books for potential mergers if he had knowledge of the fraud, McNamee argued.