SEC to press civil case against Scrushy

WASHINGTON — The Securities and Exchange Commission is preparing to press its civil fraud case seeking nearly $800 million from HealthSouth Corp. founder Richard Scrushy despite his acquittal on criminal charges of orchestrating a $2.7 billion accounting fraud at the medical rehabilitation services chain.

The SEC's case has been on hold for two years because it was deemed to be in conflict with the Justice Department's criminal prosecution of HealthSouth, which Scrushy once led as chief executive.

In a stunning move, a jury acquitted Scrushy last Tuesday on 36 criminal counts of false reporting, conspiracy, fraud and money laundering. But SEC attorneys plan to file court papers against him on Thursday, an agency spokesman said Tuesday, in a civil case with its lower burden of proof for the government.

"We will pursue our case," spokesman John Nester said.

The SEC is seeking $785 million in civil fines and restitution to shareholders plus interest from Scrushy and to have him barred from serving as an officer or director of any publicly traded company.

Last week, U.S. District Judge Inge Johnson — who in mid-2003 halted the SEC's case until Justice completed its criminal probe of Scrushy — ordered the SEC to "show cause" by Thursday why its case shouldn't be dismissed. In another setback to the agency at the time, Johnson lifted an SEC-requested freeze on an estimated $150 million in Scrushy's assets.

Because Scrushy's compensation was tied in part to HealthSouth's performance, he pocketed $267 million in salary, bonuses and stock options and used it to buy yachts, luxury cars, fine art and jewels, according to federal prosecutors.

Scrushy's attorneys have said that he wishes to return as an executive to HealthSouth, where he continues to sit on the board of directors. The company's new managers have made it clear that he would not be accepted. Some legal experts say it's difficult to imagine any company wanting Scrushy on the payroll, despite his acquittal, because at the least he failed to detect a massive fraud at the company he led.

The SEC, which originally filed charges against Scrushy in March 2003, is accusing him of accounting fraud and making a false declaration to the agency by signing as CEO the company's inaccurate financial statements.

"Scrushy certified (HealthSouth's) financial statements when he knew or was reckless in not knowing they were materially false and misleading," the SEC said in its lawsuit. It said the company artificially inflated earnings "at Scrushy's instruction."