August 27, 2006
Scrushy Has a Tough Week
Although Richard Scrushy was found not guilty in his initial criminal trial, he has not been as fortunate in other matters. This past week, the Alabama Supreme Court ruled that the former CEO of HealthSouth owes HealthSouth "$51.5 million" "as repayment for bonuses he earned while" at the company. (see Alabama News here) (see also Wall Street Jrl here) This is an example showing that a not guilty finding is not always definitive of the outcome in collateral civil matters.
Scrushy was also asking the federal court this past week to reconsider his conviction on bribery and fraud charges resulting after a jury trial. (see here) He is arguing insufficient evidence on the bribery charge.(see Alabama News here)
July 11, 2006
7 Day Sentence Not Enough for Martin
The 11th Circuit Court of Appeals in the case of United States v. Martin (Michael Martin) here ruled that the sentence issued by the district court was insufficient, despite the defendant providing cooperation pursuant to a 5K1.1 motion. The court stated:
"In Martin's case, we now are squarely presented with the question of whether a 23-level departure under s 5K1.1 for his assistance and an ultimate sentence of 7 days' imprisonment for his multi billion-dollar securities fraud are reasonable. The answer is easy: they are not."
Martin, a former CFO of HealthSouth provided evidence against Richard Scrushy at his HealthSouth related trial, in which Scrushy was found not guilty. Despite this cooperation, the government argued that a 23 level departure was unreasonable. The appellate court stated:
"[T]he choice of a 23-level guidelines departure under 5K1.1 to a 0-6 months guideline range was unreasonable where Martin's crimes yielded an advisory guidelines range of 9-11 years' imprisonment and a potential sentence of 15 years. Martin's cooperation, while commendable and extremely valuable, is not a get-out-of-jail-free card."
The court found the sentence "shockingly short" and the fact that Richard Scrushy was found not guilty at this trial was not comparable. Martin did "forfeit $2.375 million" dollars.
Although this sentence was clearly short, the government appeal is somewhat surprising. Normally the risk of going to trial reaps greater rewards than not going to trial. Thus, when one accused receives a greater sentence than the individual who went to trial, the incentive of the plea is minimized. When you roll the dice at trial you risk a huge sentence if convicted. Likewise, if you roll the dice and take a plea, the chance may be that you will do more time than the person who you testified against.
June 29, 2006
Siegelman & Scrushy - Verdicts In
Former Alabama Governor Don Siegelman was found guilty of 6 of the 32 charges against him (see Birmingham Alabama News here). These included some of the counts for bribery, conspiracy, mail fraud, and obstruction of justice.
Former HealthSouth CEO Richard Scrushy were found guilty today of all of the bribery, conspiracy and mail fraud counts brought against him.
Acquitted were Paul Hamrick, former Governor's Chief of Staff, and Mack Roberts, former head of the Alabama Department of Transportation.
The jury was out 11 days before bringing back these verdicts.
For background on this case, see some prior blog posts here:
- Scrushy and Former Alabama Governor Siegelman Indicted on Bribery Charges (here)
- Round Two of the Scrushy Prosecution (here)
- Jury Selection Begins in Corruption Trial of Scrushy and Former Gov. Siegelman (here)
- Scrushy & Siegelman Trial Open Today (here)
- Corruption Prosecution of Scrushy and Siegelman Goes to the Jury (here)
June 18, 2006
HealthSouth Related Sentencing
Hannibal "Sonny" Crumpler, a former executive at HealthSouth was sentenced to eight (8) years in prison. The government asked for 15 years and the defense asked for significantly less. (see Birmingham News here). In an emotional hearing in which the accused's son and wife begged for leniency, the Birmingham News reports that the prosecutor stated, "such pleas were not relevant to sentencing."
Prosecutors argue using numerical valuations premised on loss. In contrast the defense uses sociological concerns. Should these values be pitted against each other?
In the meantime, former CEO of HealthSouth Richard Scrushy, who was found not guilty in the initial federal criminal trial against him, awaits a jury decision in a different case (see here).
May 09, 2006
5K1.1 Decision In HealthSouth Related Case
According to the Eleventh Circuit in the case of U.S. v. McVay, a 5K1.1 motion filed by the government does not give a district judge a unlimited license to depart.
McVay, the former "Chief Financial Officer and Senior Vice-President, and Trreasurer of HealthSouth Corporation" plead guilty to conspiracy to commit wire and securities fraud. The offense level was a 29, but the district court departed to an 8 when the government filed a 5K1.1 motion. The government appealed. The appellate court states that:
" After careful review of the record and the parties' briefs and oral arguments, we conclude the district court reversibly erred by downwardly departing so sharply, based on substantial assistance, virtually without explanation, and on a wholly improper basis."
The appellate court stated that "despite McVay's cooperation, a 'substantial term of imprisonment is required' given the seriousness of McVay's crimes."
One has to wonder several things here:
1) Would the government have pursued the appeal of this case if Richard Scrushy had been convicted? As noted by co-blogger Peter Henning, it probably would not have made a difference in that the appeal was started before the trial.
2) Can a court still depart substantially as long as they provide a clear indication that it does not consider the crime to be as serious as contended by the government and no improper factors are used in determining the sentence?
3) According to the appellate tribunal the alleged loss in this case was $400 million, but was this a proper way to compute the loss in light of the Olis decision in the Fifth Circuit?
4) Does this case restore some power to the government to play a hand in sentencing even when they ask a court to depart premised on substantial assistance?
What is perhaps the most telling aspect of this decision is that appellate tribunals will in fact review sentences. This is an important step to assuring that discretion is monitored. It is also a strong argument as to why the legislature does not have to intercede post-Booker to control courts - - the appellate courts are doing just fine on their own.
(esp) (w/ a hat tip to Alex Coolman)
April 30, 2006
Scrushy & Siegelman Trial Open Today
Richard Scrushy, previously acquitted in a federal trial involving his activities with HealthSouth, will begin his second trial today. Scrushy is charged with conspiracy, bribery, and mail fraud for "allegedly making two hidden payments totaling $500,000 in 1999 and 2000 to then-Alabama Gov. Don Siegelman in return for a spot on a state regulatory panel that oversees HealthSouth and other health-care providers. " See Wall Street Journal here.
His co-defendants at trial include former Governor Don Siegelman, who is on trial in the height of his campaign for the Democratic Nomination for Governor of Alabama.
This trial may prove to be as fascinating at Scrushy's last trial. The Wall Street Journal here describes events occurring outside the courtroom.
January 22, 2006
What is Favorable Press in a Trial?
AP reports here regarding claims that Richard Scrushy paid for favorable press in his trial. Scrushy, in response, has a statement on his website here denying the claim. The bottom line is - does it make a difference since the jurors should not have been reading newspaper articles related to the case.
January 04, 2006
Scrushy Ordered to Repay $47.8 Million in Bonuses
You can't keep track of all the litigation related to HealthSouth and its former CEO, Richard Scrushy, without a crib sheet these days. In addition to the federal corruption charges against Scrushy (and former Alabama Governor Don Siegelman), the SEC's securities fraud suit against him related to the accounting problems at the company, a breach of contract action between Scrushy and Healthsouth related to his dismissal as CEO in 2003, and a pair of libel actions againsts the Birmingham News and a radio talk show host, a Jefferson County (AL) judge has found against Scrushy in a shareholder derivative action. The judge found that Scrushy was unjustly enriched in receiving $47.8 million in bonuses from the company based on meeting certain profit targets due to the accounting fraud that inflated HealthSouth's earnings from 1997 through 2003. An AP story (here) notes that the judge found Scrushy was liable to return the bonuses regardless of whether he knew about the fraud because he did not deserve them. Needless to say, this one is likely to be appealed, joining the other cases as they fill up the federal and state courts in Alabama. (ph)
December 30, 2005
A Busy Week For Scrushy
The time between Christmas and New Year's Day is usually pretty slow, except in retail and, at least this year, for former HealthSouth CEO Richard Scrushy. Earlier in the week, Scrushy entered a "not guilty" plea to federal corruption charges alleging that he paid bribes to former Alabama Governor Don Siegelman for an appointment to a state board. HealthSouth, the company he founded, responded to his multimillion dollar breach-of-contract suit related to the termination of his employment agreement by countersuing to recover approximately $76 million in salary, bonuses, and stock option awards because he "systematically plundered" the company during the period of its ongoing accounting fraud. A Reuters story (here) discusses the company's countersuit. The company also held its first annual meeting since the accounting problems surfaced in March 2003, the only one in its history without Scrushy as a member of the board because he resigned his position in early December rather than face being turned out by shareholders. An AP story (here) discusses the annual meeting. With a criminal trial looming along with discovery in the SEC's securities fraud action, things won't slow down for Scrushy and his legal team. (ph)
December 22, 2005
Scrushy Sues Birmingham News and Radio Host for Libel
Former HealthSouth CEO Richard Scrushy and his wife, Linda, filed libel suits against the Birmingham News and Alabama radio personality Paul Finebaum for comments regarding their decision to switch churches during the government's investigation of fraud at the company. The Scrushys changed congregations from one in the suburbs to a largely African-American church in Birmingham in 2003, after he was terminated from HealthSouth and the U.S. Attorney's investigation obtained the cooperation of all five CFOs regarding the accounting fraud. The Scrushys allege that the Birmingham News quoted a law professor as stating that the change was to gain an advantage in the expected criminal prosecution and made them appear to be "like a devious hypocrite and heathen," while Finebaum is accused of making unflattering comments about Linda Scrushy. Both defendants are challenging the suits on First Amendment grounds, and it will be interesting to see if the case can survive a summary disposition. An AP story (here) discusses the libel suits. (ph)
December 17, 2005
Scrushy Sues HealthSouth for $70 Million
Former HealthSouth CEO Richard Scrushy filed a lawsuit against the company for breach of his employment agreement on the ground that his acquittal in June means that he should not have had the benefits of the contract terminated. The five-year contract calls for annual pay of $1.2 million and at least that amount in yearly bonuses, along with other benefits. HealthSouth's board of director's declared Scrushy's contract "null and void" as of March 19, 2003, the date he was put on administrative leave after the government's investigation of the company became public (see Form 8-K here). Scrushy alleges in his suit, filed in state court in Jefferson County, Alabama, that the agreement can only be terminated if he is convicted of a felony, which did not happen in the first trial, although it could in a second prosecution for bribery involving former Alabama Governor Don Siegelman that is pending in the Middle District of Alabama.
Along with his claim for damages, Scrushy seeks attorney's fees for pursuing the breach of contract action. If he is successful, this would add to HealthSouth's tab for the cost of his representation because the company is likely on the hook for the attorney's fees from the first criminal trial, and will be for the SEC case if Scrushy is successful in that proceeding. This one is going to just keep getting messier, and costlier for HealthSouth if Scrushy prevails in the various litigation. A Birmingham News story (here) discusses Scrushy's lawsuit. (ph)
December 10, 2005
Former HealthSouth CFO Receives Five Year Sentence -- Did He Tell the Truth?
The fifth and last former HealthSouth CFO who entered a guilty plea, William Owens, received the longest sentence by far of any executive when U.S. District Judge Sharon Blackburn imposed a five-year prison term. The other former CFOs received sentences that ranged from probation to three months, including one who was resentenced to a week when the Eleventh Circuit found that the sentencing judge had not adequately articulated the reason for a downward departure.
One interesting question was whether the court would find that Owens' testimony against former CEO Richard Scrushy at his fraud trial was credible. The defense had portrayed Owens as the ringleader of the fraud, and that he kept Scrushy in the dark about the massive, long-term effort to inflate revenues and earnings, while Owens testified that Scrushy was the one who orchestrated the fraud. While the jury apparently did not believe Owens, Judge Blackburn said at the sentencing, "That person in my view escaped justice . . . I personally believe you told the truth in Mr. Scrushy's trial." Needless to say, Scrushy's lawyers have a rather different view on the matter.
One troubling aspect of the sentencing of the former HealthSouth CFOs, all of whom admitted wrongdoing, were the widely disparate sentences they received. While Owens may have been more responsible than the others due to his tenure during the height of the accounting fraud, it is hard to reconcile a five-year sentence for one executive that is twenty times longer than any other CFO received when all cooperated. The government sought an eight-year term for Owens, so in that regard the judge imposed a lighter sentence than could have been given. A CNN.com story (here) discusses the sentencing. (ph)
December 06, 2005
Collateral Consequences of Indictment
Collateral Consequences in the white collar area often include the possible loss of license (e.g., doctors, lawyers, stockbrokers, etc), debarment from receiving government contracts (e.g. military contracts), or exclusion from receiving government payments (e.g. health care fraud). Tom DeLay's case represents yet another collateral consequence (this one occurring pre-indictment) - - loss of his key position within the legislature.
Sometimes the indictment is sufficient to suffer these consequences. In the case of Richard Scrushy, a finding of not guilty did not restore his position with HealthSouth. Most recently, Scrushy announced that he will leave the HealthSouth board (see Wall St. Jrl here). Clearly the ramifications of an indictment, even when not guilty, can be devastating to the individual charged.
Likewise, a finding of not guilty is a statement that a person is not guilty of criminal conduct. Civil ramifications and the civil standard are different, and individuals who may be found not guilty can often still be faced with civil penalties, civil lawsuits, etc.
December 04, 2005
More Scrushy -- At Last the Documents
As noted here, the SEC dismissed the fraud counts against Richard Scrushy, former CEO of HealthSouth. But also noted is that although Scrushy was found not guilty in his federal trial brought by the government, there are now new federal charges in the Middle District of Alabama against him, this time he has a co-defendant, the former Alabama Governor Don Siegelman.
With everything going on with respect to Richard Scrushy it was therefore easy to miss the announcement that the trial documents in the Scrushy case had been unsealed. This is especially true when it came the Wednesday right before Thanksgiving. We gave you a stay tuned back on September 7th here.
So what's there? According to the Birmingham News here, it looks like much about nothing. But one has to wonder how the government could be objecting to the defense calling Emery Harris as a witness at Scrushy's trial when they did exactly that in the trial of Hannibal "Sonny" Crumpler.
November 08, 2005
HealthSouth Trials Continue
Although Richard Scrushy was found not guilty with respect to charges that had been brought against him by the government for his activities with HealthSouth, the trial of Hannibal "Sonny" Crumpler, a former financial executive at HealthSouth, is just beginning. Opening statements gave the following clues as to what appears will be the key trial issues forthcoming in this case - - whether the accused was "hoodwinked by the conspirators at HealthSouth" (see AP story here) and whether the credibility of the witnesses can withstand cross-examination.
October 27, 2005
Scrushy and Former Alabama Governor Siegelman Indicted on Bribery Charges
The government unsealed an indictment of former HealthSouth CEO Richard Scrushy for allegedly paying $500,000 in bribes to a campaign committee for former Alabama Governor Don Siegelman in exchange for an appointment to a state board involved in approving, among other things, construction of hospitals. The indictment, returned in May but sealed because of the pending jury deliberations in the securities fraud prosecution of Scrushy, also names two former aids to Siegelman. Scrushy was found not guilty on all the charges in that case, and a New York Times story (here) quotes one of Scrushy's attorneys, Donald Watkins, as stating, "Apparently the spanking we gave them in Birmingham was not sufficient." Any guesses on how Scrushy will plead at his arraignment?
Like Scrushy, Siegelman has also been prosecuted by the U.S. Attorney's Office on different corruption charges that were dismissed. To make things even more complicated, Siegelman is running for the Democratic nomination for Governor for the 2006 election, and if he won, there is at least a chance he could face former Alabama Supreme Court Chief Justice Roy Moore, who is seeking the Republican nomination. Moore was ousted from the court for refusing to remove the Ten Commandments from the state courthouse. If this one gets to trial, it will certainly be interesting. (ph)
October 11, 2005
Scrushy Lawyers Talk
At the recent NACDL - Georgetown White Collar Crime conference, one of Scrushy's lawyers, Jim Jenkins, told the crowd the details of the defense in this case. While based in Atlanta, Jim wrote the many memos and motions that were successful in this case. He provided the behind the scenes materials that worked well with Art Leach who was on the front line in the courtroom. Reported in the Corporate Crime Reporter here are the full details of Jenkin's talk to the white collar crowd, which the reporter appropriately characterizes as a "the most popular event" at this white collar crime conference.
October 03, 2005
The Civil Side
Many white collar cases have a civil side to them that often operates as a parallel proceeding to the criminal action. With administrative agencies such as the SEC and IRS bringing civil actions that focus on conduct similar to that covered in the criminal matter, the white collar defense attorney needs to coordinate many aspects to the criminal case. It comes down to thinking about the case globally.
An example of this is seen this week. Despite being found not guilty of criminal charges, Richard Scrushy, former CEO of HealthSouth, still has a civil action hanging over his head. According to the Mercury News (AP) here Scrushy is trying to have the civil SEC action against him dismissed. With a briefing schedule that goes through November 14 on the dismissal motion, it may be a awhile before we know the court's position on this matter.
September 24, 2005
A HealthSouth CFO Finally Receives a Jail Sentence
Former HealthSouth CFO Weston Smith, who initially blew the whistle on the fraud at the company, received the only substantial sentence among its former officers who entered guilty pleas. U.S. District Judge Robert Propst sentenced Smith to a 27-month term of imprisonment, which is a far cry from the seven-day sentence imposed on former CFO Michael Martin or the home confinement for the other former CFOs. The disparity in the sentences is a result of different judges imposing the sentences, and apparently evaluating the culpability and cooperation of the defendants by different measures. A press release issued by the U.S. Attorney's Office (here) discusses the sentencing.
Meanwhile, back at HealthSouth, Richard Scrushy launched a broadside at the company's current management, accusing them of not enhancing shareholder value and demanding that he be provided access to corporate records in his position as a member of the board of directors. Scrushy remains the largest individual shareholder of HealthSouth, and never gave up his board seat, although he has been shunned by the rest of the directors who operate the company through a special committee that does not include Scrushy -- no great surprise there. Scrushy looks like he's laying the groundwork for a return to the executive suite, assuming the SEC is no more successful than the U.S. Attorney's Office in its securities fraud case. A Birmingham News article (here) discusses Scrushy's criticism of HealthSouth's management. (ph)
September 22, 2005
Can Anyone Make Sense Out of White Collar Sentencing?
The 8-25 year sentences handed out to former Tyco officers Dennis Kozlowski and Mark Swartz provoked some commentary that the punishment was too harsh, given that these were first time offenders who pose little threat to society, at least from the standpoint of being violent or engaging in clearly illegal conduct like drug dealing. On the flip side, former HealthSouth CFO Michael Martin, one of the five guilty CFOs at the company, was resentenced by Chief U.S. District Judge U.W. Clemon to spend seven days in prison, a $50,000 fine, and two years supervised release. The government appealed the Judge's downward departure in the original sentencing, when Martin received a sentence of six months home confinement. The Eleventh Circuit held that the sentence was unreasonable, applying Booker's newly-created standard of review. A press release issued by the U.S. Attorney's Office for the Northern District of Alabama (here) quotes U.S. Attorney Alice Martin: “To send a former CFO who participated in this massive fraud for over 3 years to jail for 7 days is not justice. It is time for corporate criminals to be sent to prison in Birmingham."
The cases are certainly different, given that Martin cooperated in the government investigation while Kozlowski and Swartz went to trial and maintain their innocence. At the same time, each case involved sentencing under largely discretionary systems. When the Supreme Court declared mandatory sentencing guidelines unconstitutional in Booker and Blakely, many extolled the benefits of a return to judicial discretion in sentencing, that judges would be able to account for the particular circumstances in a case and individualize justice. If judicial discretion is a positive aspect of the sentencing process, then why the criticism of New York Supreme Court Justice Obus' sentences given to Kozlowski and Swartz? He observed the defendants first hand, heard all the evidence at trial -- twice, no less -- and assessed their statements at the sentencing hearing regarding their culpability. Neither defendant appears to have expressed the slightest remorse for his conduct, defending the money they received to the last. In that context, can we say that the judge's decision was too harsh, while it could be argued equally that perhaps he was not harsh enough? (Complaints about the policies of the New York correctional system that may assign these men to maximum security prisons, while well taken, are not directly related to the sentence imposed by the judge.)
If judicial sentencing discretion is a benefit, then we live with the decisions made by judges, at least when they are not extreme, although even that assessment would be subjective. If "discretion" is only a convenient avenue to get lower sentences, then any sentence greater than some undisclosed norm is too harsh, regardless of who has the discretion in the system. Was Chief Judge Clemon's decision to impose a seven-day sentence too lenient? The judge may have been sending a message to the court of appeals not to interfere with sentencing decisions, seeking to find the very bottom of what can be a reasonable departure in a case in which the admitted fraud at HealthSouth totaled $2.7 billion. If it is a test of wills between trial and appellate judges, a kind of turf battle, then the sentence is hardly defensible. If the judge made a reasoned assessment of the harm, and the measure of the defendant's cooperation, then the discretion vested in the trial court permits such a departure, subject to appellate review for reasonableness.
The question comes back to how much discretion should the judges have. The Federal Sentencing Guidelines took much of it away, only to have some of it restored earlier this year. To the extent that disparity in sentencing emerges in the federal system, particularly in white collar crime cases, Congress may react by constricting judicial discretion once again. Mandatory minimums, anyone? (ph)