Saturday, April 9, 2005

Scrushy Seeks to Exclude Transcript of His SEC Testimony

The prosecution of Richard Scrushy seems to have nearly come to a complete stop, with an occasional day (or less) of testimony, seemingly followed by a week of recess.  It has now fallen behind watching paint dry on the interest meter, and I wonder whether the jury feels that the government's case is floundering.  During the one day of testimony this week, on Tuesday, April 5, U.S. District Judge Karon Bowdre admonished the prosecutor for asking a witness about other Fortune 500 companies, i.e. Enron and WorldCom (see earlier post here).  The government then called the SEC staff member who took Scrushy's deposition on March 14, 2003, in connection with the Commission's investigation of possible insider trading by Scrushy and other HealthSouth employees in advance of a negative announcement the company made in 2002 about Medicare reimbursements, which caused the stock to drop.  During the course of that deposition, Scrushy was questioned about HealthSouth's financial statements, and the indictment (here) alleges that he perjured himself during the testimony.

Scrushy's attorneys objected to the introduction of the deposition transcript, which brought the trial t a screeching halt again.   In a motion filed on Thursday, defense counsel sked the judge to exclude the deposition because the SEC was cooperating in the Justice Department's investigation of HealthSouth at the time Scrushy testified and did not disclose that fact to him.  An AP story (here) discusses the motion, but does not provide any detail on the alleged constitutional violation, although I assume the claim is either a Fifth Amendment violation or due process claim. He may be arguing for outrageous government conduct, a type of due process claim, that a so-called  "perjury trap" had been set.  The claim regarding SEC cooperation with the DOJ is a difficult argument to win in the face of a long line of precedents going back to SEC v. Dresser Industries Inc., 628 F.2d 1368 (D.C. Cir. 1980), in which the D.C. Circuit said that, unlike restrictions on the IRS once a criminal investigation begins, "the SEC's civil enforcement authority continues undiminished after Justice initiates a criminal investigation by the grand jury."  Although Scrushy's deposition come right about the same time former CFOs Weston Smith and Bill Owens were talking with prosecutors and Owens wore a wire to record Scrushy, the SEC's investigation pre-dates the criminal investigation, going back to the authorization by a Formal Order from the Commission a few months earlier and the issuance of subpoenas to Scrushy (among others) on Feb. 18, 2003.  Perjury trap claims are usually unsuccessful if the investigation is legitimate because the witness has an easy way to avoid it: tell the truth.  If the Judge excludes the deposition, it would have to sink the three perjury counts. (ph)

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