Richard M. Scrushy
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Richard Marin Scrushy (born 1952) is an American health care executive and convicted felon, the founder and former CEO of the physical rehabilitation healthcare giant HealthSouth, based in Birmingham, Alabama.
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[edit] Early life
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Scrushy was born the middle child of three born in Selma, Alabama to Gerald and Grace Scrushy, a cash register salesman and nurse. Going by his middle name "Marin", he played in a garage band in high school and married young. With a wife and child, he dropped out of high school to take a job as a gas station attendant. With his second child on the way, he moved on to become a bricklayer.
Dissatisfied with his future as a bricklayer, Scrushy walked off the job and went back to school to earn his diploma and train as a respiratory technician, working nights at a local hospital to support his family. He attended Wallace State Community College in Hanceville and Jefferson State Community College in Birmingham and continued his studies at the University of Alabama at Birmingham, where he graduated in 1974 with a degree in respiratory therapy. After graduation, he became an instructor at UAB and, later, director of the respiratory therapy program there and founder of a new one at Wallace Community College in Dothan. At this point he also underwent a personal transformation, using his first name, cutting his formerly long hair, filing for divorce and remarrying.
In 1979, Scrushy left academia to work for the Houston, Texas based Lifemark Corporation, where he worked his way up the ladder to "vice president of corporate development" and "vice president of Lifemark Shared Services". By 1980 the 28-year-old wunderkind was running three departments. Lifemark was sold in 1983 and Scrushy decided to move forward with an idea he had been working on for an outpatient rehabilitative services company.
[edit] HealthSouth
With help from some friends and an initial investment of $50,000, Scrushy founded HealthSouth in Birmingham, Alabama in 1984 and opened its first facility in Little Rock, Arkansas. Within two years HealthSouth had proven to be a successful business model. The company expanded to a chain of clinics with revenues of $20 million and Scrushy was ready to take the venture to the public. As CEO, he managed every aspect of the company personally and became known for his relentlessness and sometimes short temper. By 1992, HealthSouth was generating $400 million in revenue from 145 clinics and Scrushy turned his attentions to acquiring competitors and expanding his operations to include the physician practice management startup MedPartners, to which he appointed Larry House, one of his executives. Through acquisitions, MedPartners became the largest PPM in the country and appeared on the Fortune 500. When House proved unable to hold onto the reigns of the company's explosive growth, Scrushy himself took over. After several months as interem CEO of MedPartners, Scrushy handed the position over to Edwin "Mac" Crawford who renamed the company Caremark Rx.
Meanwhile HealthSouth was still very profitable. By 2000, the company dominated the rehabilitation services market and employed more than 50,000 people at 2,000 facilities in every state of the U.S. along with facilities in the United Kingdom, Canada, Austrialia, Puerto Rico and Saudi Arabia. The company was beginning to expand into traditional in-patient hospital care in its home town of Birmingham, taking over the reigns of Lloyd Noland Hospital and starting construction of a $300 million "digital hospital" on Highway 280 near its new corporate campus.
In 2001 and 2002, Scrushy cashed in a large portion of his HealthSouth stock, including a $25-million sale the day after CFO William Massey committed suicide on revalations that Massey had been embezzling. A few weeks later, the company adjusted its earnings expectations downward due to changes in Medicare reimbursements. Scrushy was removed from the CEO position for a few months during a period of precipitous declines in the company's value
[edit] Criminal charges
[edit] Indictments and acquittal
On March 18, 2003, the FBI raided HealthSouth headquarters and the U.S. Department of Justice leveled charges of inflated earnings reports amounting to over $2 billion from the mid 1990s. Many of the charged executives pled guilty to fraud and agreed to testify against Scrushy. He was indicted in November of that year, charged with 85 counts of fraud, money laundering, conspiracy, and making false statements. He was the first executive to be charged under the July 2003 Sarbanes-Oxley Act which put the responsibility for accurate earnings reports on the shoulders of corporate CEOs. His assets were frozen and property seized in a series of raids on his multiple residences. Scrushy was released on $10-million bail and fitted with an electronic ankle monitor. (He ultimately did not have to wear the ankle monitor, however.) He maintained his innocence, saying that other HealthSouth officers perpetrated the fraud without his knowledge or consent. When the trial opened, the number of charges had been reduced to 36. United States Attorney Alice Martin made the case for the prosecution. Scrushy's defense team was made up of former city attorney and billionaire banker Donald Watkins along with lawyers Art Leach and Jim Parkman. The defense played to the prosecution's lack of evidence and to Watkins' understanding of the perceptions of likely jurors. The prosecution presented a detailed but dry and difficult-to-understand case.
During the lead-up to the trial, HealthSouth's new executives washed their hands of Scrushy and cooperated fully with the Justice Department. Scrushy sued to keep his position on the Board and to have the company pay his legal expenses. He was answered by a countersuit demanding that he pay back a loan he had taken from the company to purchase shares. Scrushy moved his church membership to the Guiding Light Church, a predominantly African-American fellowship. He toured other black churches and left large charitable contributions from his foundation at every stop. He also started a religious-themed morning television talkshow called "Viewpoint" which he co-hosted with his wife Leslie. Prominent ministers were made frequent guests on the program. These actions were perceived by many as transparent attempts to curry favor with potential jurors in the Birmingham area. During the trial, many prominent ministers sat in the courtroom showing their support for Scrushy (his so-called "Amen Corner").
In 2005, after 21 days of deliberation, Scrushy was acquitted on all 36 counts of fraud and conspiracy stemming from the $2.7-billion fraud.
[edit] 2005 Indictments, 2006 Convictions
On October 26, 2005, just four months after being acquitted, Scrushy was indicted on new charges of bribery and mail fraud in connection with former Alabama Governor Don Siegelman. Two former Siegelman aides were charged in the indictment as well.
In short, Siegelman was accused of trading government favors for campaign donations when he was governor from 1999 to 2003 and lieutenant governor from 1995 to 1999, and Scrushy was accused of arranging $500,000 in donations to Siegelman's campaign for a state lottery in exchange for a seat on a state hospital regulatory board. [1]
On June 29, 2006, a Federal jury found both Scrushy and Siegleman guilty on multiple charges, including bribery, mail fraud, and obstruction of justice. Sentencing is pending as of this writing.
[edit] References
- Cherry, Brenda, and Patricia Neering. (July 7, 2003) "The Insatiable King Richard. He Started as a Nobody. He Became a Hotshot CEO. He Tried to be a Country Star. Then It All Came Crashing Down. The Bizarre Rise and Fall of HealthSouth's Richard Scrushy," Fortune magazine.
- Whitmire, Kyle. (May 5, 2005) "Scrushy Watch: All the King's Lawyers: A short history of the long trial of Richard Scrushy." Birmingham Weekly. [2] - accessed April 2, 2006
- Romero, Simon and Kyle Whitmire. (January 20, 2006) "Reporter says Scrushy paid her to write favorable articles." New York Times.
- SEC litigation release
- Birmingham News special report
- USA Today story on Scrushy's television show
