Prosecutors opened their fraud case against former HealthSouth Corp. chief executive Richard M. Scrushy on Tuesday, telling a jury he was "the man in charge, the man in control," and the man entrenched in a wide-ranging conspiracy to inflate the company's earnings by $2.7 billion.
At issue is what Scrushy, 52, knew about a fraud that permeated the rehabilitation-hospital chain from 1996 to 2003 and has produced guilty pleas from more than a dozen former HealthSouth executives, including five onetime finance chiefs who are scheduled to testify against Scrushy.
Scrushy faces 58 counts of conspiracy, perjury, securities fraud and obstruction of justice. His prosecution also marks the first test of the Sarbanes-Oxley Act, a 2002 law that requires top executives to certify the accuracy of their financial results.
"This case is going to come down to one word, and that's knowledge," Birmingham U.S. Attorney Alice H. Martin told the jury during her hour-long opening statement.
But Scrushy's defense team almost immediately attacked the premise of the government's case. Alabama lawyer Jim Parkman told jurors in a colorful presentation that Scrushy's subordinates, who called themselves "the family," repeatedly lied to him about the scheme they hatched to enrich themselves and cover their own tracks after bad business decisions hurt the company's finances.
"This is not going to be a dumb-defendant defense," Parkman said. "This is going to be a defense based on a lied-to defendant."
Scrushy's lawyers also signaled that they will draw out alleged fiscal improprieties, alcohol and drug use, and marital infidelities by key witnesses who will testify against him.
Former chief financial officer William T. Owens, who audio-taped conversations with Scrushy under the auspices of federal investigators in March 2003, allegedly engineered a way to forgive himself a $1.2 million company loan, Parkman told the jury. Michael D. Martin, another former finance chief who pleaded guilty, was able to gain release from liability in multimillion dollar shareholder lawsuits by striking a deal with the government, Parkman said.
Scrushy, who founded the Birmingham company in 1984 after getting a degree in respiratory therapy, did not have the accounting know-how to carry out the fraud -- nor, his lawyers argued, did he have a motive to take down a company that became "the one great love of his life."
Prosecutors attempted to counter that claim late Tuesday when they called to the witness stand Aaron Beam Jr., the company's first chief financial officer, who told the jury that Scrushy had answered technical questions about the company's finances from analysts and investors for years. Defense lawyers have not yet had a chance to cross-examine Beam, who will return to the witness stand Wednesday. The trial is expected to last four months.
"Richard managed by the numbers," Beam said. "It was sort of a micromanagement style."
Government lawyers contend that Scrushy had a powerful motive to carry out the fraud and pump up the company's stock price. Between 1996 and 2002, they said, he sold $150 million worth of HealthSouth stock. He also earned more than $100 million in salary and bonuses during that period, prosecutors said.
Prosecutors told the jury he spent $3.2 million on a Cessna Citation airplane, $370,000 on a 21-carat diamond ring and $321,583 on a 40-foot racing boat he christened "Monopoly."
After conferring with both sides at the bench, U.S. District Judge Karon O. Bowdre instructed the jury to remember that "Mr. Scrushy is not on trial for being a wealthy man, or for making and spending money. Again, this case is about whether Mr. Scrushy knowingly participated in the fraud at HealthSouth."
The most important single piece of evidence in the case could be the tapes provided by former finance chief Owens because they are among the only signals to what Scrushy may have been thinking at the time of the fraud. Portions of the tapes have been released as part of related Securities and Exchange Commission hearings, but the public has not heard substantial excerpts of them.
Defense lawyer Arthur W. Leach told the jury there are no e-mails, memos or other documents tying Scrushy to the scheme.
Scrushy appeared to be fully engaged in the proceedings, writing notes to his lawyers and chatting with his father in the front row. During one break in the proceedings, he and his wife, Leslie, looked at passages she pointed out in a red-leather bound Bible she carried to the eighth-floor courtroom.