Richard M. Scrushy

January 26, 2005
In Birmingham, Richard Scrushy Is a Local Story
By REED ABELSON

BIRMINGHAM, Ala., Jan. 25 - The trial of Richard M. Scrushy, one of this city's most prominent and charismatic executives, got under way today, with the chief federal prosecutor calling Mr. Scrushy the mastermind of a sweeping accounting fraud at the hospital chain he founded. "He was the boss - he was the man," the prosecutor said.

Alice H. Martin, the United States attorney in charge of the case, promised the jurors that she would bring them "inside HealthSouth" to the executive offices where the decisions to manipulate the hospital company's results took place. Ms. Martin said all five former chief financial officers would testify. "You will hear how Richard Scrushy directed them to inflate that profit," artificially boosting earnings by $2.7 billion from 1996 through 2002, she said.

But defense lawyers countered by arguing that Mr. Scrushy was the victim of a fraud conceived by the financial officers, who, the lawyers said, misled him as much as they misled the company's outside auditors, Ernst & Young, and the company's board of directors. The executives "did it not for Richard Scrushy," argued Jim Parkman, a Birmingham lawyer who is serving as Mr. Scrushy's main defender at the trial. "They did it for themselves.

"You're not going to find one single memo, document, note, e-mail - nothing - with Richard Scrushy's fingerprint on it," Mr. Parkman said.

Instead, Mr. Parkman sought to describe William T. Owens, a former chief financial officer who is a critical government witness, as a man desperate to keep the company going. "He needed the money," he said. "He needed it more than anyone else."

The courtroom was crowded with lawyers, local press and the curious, and local television crews waited on the courthouse steps, eager to catch Mr. Scrushy leaving, holding hands with his wife. The trial made the local evening news, although it was not the top story.

While the case against Mr. Scrushy, who earned and spent tens of millions of dollars as head of HealthSouth, is of national interest, the trial is, in many senses, a local one. He will be judged, if not exactly by a jury of his peers, then certainly by the Birmingham community.

And that seems to be a crucial element of Mr. Scrushy's defense strategy. Skeptics say he began more than a year ago to court public opinion, reminding people of his good works and his religious faith. Last year, he began attending the Guiding Light Church, a ministry that caters primarily to blacks. In March, Mr. Scrushy and his wife, Leslie, became hosts of a half-hour Christian-themed talk show each weekday morning on local television.

The judge, Karon O. Bowdre, of United States District Court in Birmingham, has tried to curtail what she considered overt attempts to influence the jury pool outside the courtroom by forbidding lawyers to comment on the case. In addition, she closed most of the jury selection to the public.

The jury seated for the trial - 12 members of the regular panel and 6 alternates - is evenly divided between men and women; 11 of the jurors are black.

Aware that both the prosecution and the defense may try to introduce elements of Mr. Scrushy's character or lifestyle that go beyond the issues in the case, the judge told the jury on Tuesday, "A trial is not a popularity contest." And, seemingly in response to concerns raised by the defense, Ms. Bowdre emphasized that the jurors should not be influenced one way or another by Mr. Scrushy's wealth. "Mr. Scrushy is not on trial for making and spending money," she said.

Federal prosecutors are presenting a long list of charges against Mr. Scrushy, although they announced on Tuesday that they had reduced the number of counts to 46 from 58. Along with charges of conspiracy, fraud and money laundering, he is charged with false certification of corporate finances in the first major test of the Sarbanes-Oxley Act, Congress's response to a wave of corporate fraud cases and its attempt to make executives more accountable for what goes on in their companies. At HealthSouth, Mr. Scrushy signed documents attesting that the financial statements given investors were accurate.

Mr. Scrushy, who has steadfastly, even defiantly, maintained his innocence, has gone through a changing cast of lawyers. The team that will be defending him in court is now from the Birmingham area, including not only Mr. Parkman but also Donald V. Watkins, a prominent black lawyer and businessman who was sitting next to Mr. Scrushy on the opening day of the trial.

Just a few years ago, Mr. Scrushy, and Birmingham as well, seemed to revel in his astonishing success at creating HealthSouth, a chain of rehabilitation hospitals. A former respiratory therapist, he started the company in 1984 from virtually nothing, building it into a national presence with some 2,000 hospitals and clinics that employed 50,000 people across the country. To an aging industrial city, Mr. Scrushy seemed to promise a robust future in health care and economic prosperity.

Mr. Scrushy himself embodied what it was to be a modern chief executive, amassing tremendous personal wealth with all the trappings: luxury homes, fast cars and boats and the ability to spread his good fortune around the community. His charity was on prominent display, with the Scrushy name splashed on buildings from the local library to a junior college campus. His vision included a hospital here that would have the very latest in medical technology.

But the hospital remains unfinished, and the new management team running HealthSouth plans to exit the venture.

In the wake of the fraud uncovered at HealthSouth, investors lost hundreds of millions of dollars, and the shares still do not trade on a major stock exchange. Having narrowly averted bankruptcy, HealthSouth is now struggling to straighten out its affairs. It employs 44,000 people.

Some in the community blame Mr. Scrushy for what has transpired since the government first disclosed the fraud nearly two years ago. "I think there's a real strong sense he has let people down and shamed a community that was proud of HealthSouth," said Pamela H. Bucy, a law professor at the University of Alabama in Tuscaloosa, who used to live in the Birmingham neighborhood where the Scrushys live.

But the defense lawyers sought to portray Mr. Scrushy as a great visionary, brought down by his trust in others. Mr. Scrushy had "a dream of building something great - not for himself, but for others," Mr. Parkman said.

Much of the trial is expected to come down to the credibility of the witnesses, including the numerous former HealthSouth executives who have already admitted their part in the fraud and are cooperating with the government. Mr. Owens wore a secret recording device to tape some of his conversations with Mr. Scrushy, a tape that the jury is expected to hear during the trial.

But while Ms. Martin made frequent references to the coming testimony of her witnesses, the defense made clear that it would offer a vigorous attack on the significance of what was said on the tape and whether it represented clear proof of Mr. Scrushy's involvement.

Arguing that the tapes were "controlled" in a way to try to reach a certain outcome, Arthur Leach, the second defense lawyer to make opening arguments, told jurors to listen to it carefully. "You will see it's cryptic," he said. "There are no direct references."

And legal specialists say that defense lawyers are likely to take an extremely aggressive approach to defending their client, as a way of countering the steady stream of witnesses testifying against Mr. Scrushy.

"Scrushy is going to swing for the fences every chance he gets," said Roland Riopelle, a former federal prosecutor who now practices at Sercarz & Riopelle in New York.

The stakes are high: Mr. Scrushy faces a lengthy prison term and heavy fines if he is convicted on some of the counts, and the trial has been widely viewed as an important test of the new Sarbanes-Oxley legislation because he was the first chief executive to be charged under the law.

Prosecutors have poured enormous energy and resources into the case. "It is of monumental importance, not only to the United States attorney in Alabama, but also to the Department of Justice as a whole," said Christopher J. Bebel, a former federal prosecutor who now practices in Houston.


Glynn Wilson contributed reporting for this article.



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BAGHDAD (Reuters) - Thirty-one U.S. troops were reported killed in a helicopter crash and five more died in insurgent attacks Wednesday in the deadliest day for American forces since they invaded Iraq 22 months ago.

Guerrillas also killed 10 Iraqis in a string of bombings and raids Wednesday. President Bush urged Iraqis to defy the insurgents, who are waging a bloody campaign to disrupt Sunday's landmark election, a cornerstone of U.S. plans.

CNN, quoting the U.S. military, reported that 31 Marines died when their transport helicopter went down in the deserts of the restive Anbar province of western Iraq.

The military confirmed casualties to reporters but gave no figures, as search and rescue teams scoured the area. The cause of the crash was not immediately known.

"Obviously, anytime you lose life it is a sad moment," Bush told a White House news conference. Mounting U.S. deaths have increased public pressure for a clearer exit strategy from Iraq.

Four U.S. Marines were killed in action in Anbar province, and an American soldier died in a rocket-propelled grenade attack north of Baghdad, U.S. officials said.

The latest surge of insurgent attacks appeared aimed at sowing panic even as the U.S.-backed interim government vowed stringent measures to safeguard the election, Iraq's first since the fall of Saddam Hussein in April 2003.

"I urge all people to vote. I urge people to defy these terrorists," Bush said, calling the election a "grand moment in Iraqi history."

"They (the terrorists) have no clear view of a better future. They're afraid of a free society," he added.

In a closely coordinated attack, three suicide car bombers hit the town of Riyadh, a Sunni Arab area southwest of the northern city of Kirkuk.

Two explosives-laden cars blew up simultaneously close to an Iraqi army post and police station and a third vehicle detonated minutes later on a nearby highway, a local police chief said.

Four Iraqi policemen, two Iraqi soldiers and three civilians were killed, and at least 12 people were wounded, police said.

Shortly after the blasts, a U.S. combat patrol heading to the scene came under small arms fire and two U.S. soldiers were lightly wounded, the military said.

The previous deadliest day for U.S. forces was March 23, 2003, the third day of the war, when 28 U.S. soldiers died mostly in fierce fighting in southern Iraq.

STRING OF ATTACKS

Police in Baquba, a mixed Shi'ite and Sunni town 65 km (40 miles) north of Baghdad, said one Iraqi policeman was killed and at least eight people were wounded when gunmen fired on the local offices of three parties contesting the polls.

Sunni insurgents have repeatedly targeted the country's fledgling security forces in the countdown to the election, accusing them of collaborating with U.S.-led occupiers.

Iraq's Shi'ite majority is expected to dominate the vote after decades of rule by Saddam's Sunni minority.

In the northern city of Mosul, a rebel stronghold that has seen persistent violence, a video filmed by insurgents showed three Iraqi men who had apparently been taken hostage and who said they worked for Iraq's electoral commission in the city.

On the video, a hooded insurgent carrying a pistol read out a statement as another masked guerrilla crouched with a rocket-propelled grenade launcher on his shoulder.

"We are mujahideen in the province of Nineveh. What they call elections have no basis in the Islamic religion and that's why we will hit all election centers," the statement said.

Several guerrilla groups in Iraq -- including militants loyal to Abu Musab al-Zarqawi, al Qaeda's leader in the country -- have declared war on Sunday's elections, vowing to attack polling stations and kill those who dare to vote.

The government plans extraordinary security measures, including closing Baghdad airport and land borders over the election period, extending night curfews in cities and banning cars from roads on election day.

Zarqawi, a Jordanian with a $25 million bounty on his head, says the election is a plot by Washington and Iraqi Shi'ite allies against Sunni Arabs, who now fear being marginalised.

Iraq's Shi'ites, oppressed under Saddam, strongly support the elections. A list of candidates dominated by Shi'ite Islamists and drawn up with the guidance of revered cleric Ayatollah Ali al-Sistani is expected to win the most votes, cementing the newfound political power of Shi'ites.

But many Sunni Arab parties will boycott the polls, saying the insurgency raging in Iraq's Sunni heartlands will prevent their supporters from voting and skew the results.

Tension between Shi'ite and Sunni Arabs has been stoked by a series of bomb attacks on Shi'ite targets, raising fears of sectarian conflict.

Insurgents have also assassinated several leading officials. Tuesday a top Baghdad judge was killed along with his son in an ambush as they left home during morning rush hour.