Fraud's 'Micromanager' Or Victim of 'a Big Rat'?

Closing Arguments Give Contrasting Takes on HealthSouth Founder

BIRMINGHAM, May 18 -- Government lawyers told jurors that HealthSouth Corp. founder Richard M. Scrushy was a "quintessential micromanager" and the criminal mastermind behind a $2.7 billion accounting fraud, while his defense team portrayed him as the victim of scheming corporate underlings.

The case, which drew to a close Wednesday after four months, has attracted national attention because it is the first in which prosecutors have employed the 2002 Sarbanes-Oxley Act, designed to hold corporate executives accountable for financial misdeeds that occur under their management. Congress passed the law after executives at Enron Corp. and WorldCom Inc. disavowed knowledge of frauds that drove their companies into bankruptcy and cost investors billions of dollars.

Scrushy faces 46 charges including securities fraud, conspiracy, and making false statements.

U.S. Attorney Alice H. Martin told the jury that Scrushy's handpicked deputies, who testified against him, and his own words belied his claims of ignorance about the fraud that spanned seven years. All five of the company's former chief financial officers have pleaded guilty and testified that Scrushy was responsible for financial reports that deceived investors.

Scrushy, 52, was motivated by pressure to keep up a decade-long record of meeting or beating Wall Street earnings expectations, prosecutors said. They also cited what they described as his outsize ego and a desire for cash. Witnesses testified that Scrushy received $201 million by selling stock options, or about 83 percent of the proceeds from the fraud from 1996 to 2003. During that period, he spent $203 million on cars, boats, diamond jewelry and waterfront property, according to the indictment.

"I submit to you he had 201 million motives," Martin said.

Prosecutors played recorded excerpts from a conference in which Scrushy said he took budget reports home every weekend and carefully monitored profit and loss statements. They also relied on secret audio tapes made by finance chief William T. Owens of conversations with Scrushy in March 2003, shortly before FBI agents raided the rehabilitation hospital chain's Birmingham headquarters. In the recorded conversations, Scrushy urged Owens to "go down fighting" rather than resign and draw the attention of securities regulators and law enforcement officials.

"Remember, I got eight kids," Scrushy said. "I got a bunch of babies at home. They need their daddy."

Defense lawyer James W. Parkman III called Owens and the rest of the co-conspirators "a big rat and his pack of mice, squeaking trust me, trust me, believe me." He highlighted the misdeeds of prosecution witnesses, including adultery and failure to pay income tax, as reasons not to believe them, noting that they had pleaded guilty in exchange for more lenient sentences.

Parkman added that the prosecution's case had as many holes as a slice of Swiss cheese and showed the jury a cartoon of a rat with a wedge of yellow cheese on its head. "You know what he's carrying -- the government's case," Parkman said. Near the end of his presentation to the jury, Parkman's voice cracked and he sounded tearful as he pleaded with jurors to find the defendant not guilty.

In a wide-ranging argument that spanned issues such as patriotism and Birmingham's history of racism, three defense lawyers repeatedly urged jurors to decide the government had not met its strict burden of proof. Parkman briefly mentioned lynching, and another defense lawyer, Donald V. Watkins, encouraged jurors to "police the government" and "send a message to Washington" about what he called sloppy work by the FBI and prosecutors in the case.

Justice Department official Richard C. Smith, who spoke in rebuttal, said the defense had focused on entertainment rather than the evidence, employing "smoke and mirrors in an attempt to divert your attention from the facts of the case."

He said prosecutors don't get to pick their witnesses. "The people we put on are the people he hired," pointing to Scrushy, who sat impassively and occasionally whispered to his lawyers or wrote notes.

Scrushy's name did not appear on incriminating documents produced by the government, and he already was wealthy, so he had little motive to take part in the scheme to inflate HealthSouth's stock price, defense lawyer Arthur W. Leach argued. A HealthSouth security official testified during the trial that Owens said Scrushy did not know about the fraud, but prosecutors said the man's testimony was compromised by the fact that he earned about $9,000 a month in fees from Scrushy's defense team.

Scrushy's defense took an approach likely to be used next year by former Enron chief executive Kenneth L. Lay. Both men argue that they were kept in the dark by duplicitous insiders and that they lost millions of dollars of their own money when their companies faltered. Both have made generous financial contributions to charities and have been major figures in their local communities.

Earlier this week, the judge in the case released a transcript from November 2003 in which she detailed her contact with one of Scrushy's children at a riding stable and told lawyers on both sides that it would not affect her ability to hear the case fairly.

The courtroom was packed with Scrushy's relatives and supporters, including several preachers who lead predominantly African American churches that Scrushy has supported since shortly before his indictment was unsealed in November 2003.

Jurors will receive final instructions from U.S. District Judge Karon O. Bowdre on Thursday before they begin deliberations.