Friday, May 6, 2005

Three Strikes You're Out! -Update in Scrushy Case

In this blog's April 6th post here, we talked about the judge's admonishment to the jury to disregard the prosecutor's comments regarding WorldCom and Enron.  After all, it is pretty obvious that these companies have nothing to do with this case -- other than to perhaps get the jury thinking that there is some comparison here.

But both the Wall Street Journal here and the Birmingham News (via al.com) here are reporting that the prosecutor mentioned Enron  in front of the jury again.   And according to the Birmingham News - it was not once, but three times.  Despite objections being granted by the court two times, the prosecutor went for a third question with the "E" word.  And not surprisingly, the court called the prosecutor's out -- (no more cross-examination of this witness for them).

According to these newspaper online stories it sounds like the initial mention of Enron came from the witness, and the prosecution argument here would probably be that their questions were an "invited response," a response sometimes permissible when a witness opens the door to certain questions.  But knowing the judge's prior position, and after two strikes, the third question was certainly taking an extraordinary risk. 

One has to wonder what the prosecution is thinking here.  Will the jury be upset with the judge because it seems like the prosecutors can't get their questions answered?  If the prosecution thought they might not make substantial headway with a witness would they  be better off,  tactically, having the cross examination stopped in midstream? 

On the other hand, continued conduct that goes against the judge's ruling is building an argument for the defense premised on prosecutorial misconduct should the defendant be convicted.  One approach  to prosecutorial misconduct is not to focus on a specific instance of misconduct, but rather to look cumulatively at the conduct throughout the trial. If the prosecution thinks the jury may convict the accused, is it wise to risk this?  Or are they putting pressure on the defense to have Scrushy take the witness stand?  Stay tuned.

(esp)

May 6, 2005 in HealthSouth | Permalink | TrackBack (0)

Thursday, April 28, 2005

Scrushy- The Defense Continues

Scrushy - Although a defense witness was called to testify, according to an AP report here (al.com), it sounded more like evidence the prosecution would present.  There were a few comments favorable to the defense.  Strategy-wise this may prove more helpful to the defense than described in the press.  A witness who tells it with both the good and bad for the side they are called by, may often offer the more credible evidence to a jury.  But AP, also says the witness winked at Scrushy - HUM!

AP also reports here that a juror has been dismissed in the trial. 

(esp)

April 28, 2005 in HealthSouth, Prosecutions | Permalink | TrackBack (0)

Saturday, April 23, 2005

What's Good for the FBI Should Be Good for Scrushy

We posted here some comments on the opening by the defense in the Scrushy trial.  But it is a fascinating how the defense is putting the FBI to the same test as they expect of the former CEO of HealthSouth. When questioned about the evidence gathering process, FBI Agent Kelly admitted to not knowing what everyone within the FBI was doing in gathering evidence on this case. The defense here was trying to show the selective evidence gathering process that was favorable to the government. The defense also managed to show how people "in charge" just can't follow every action of those working under them. A brilliant trial strategy move here by defense Attorney Parkman to bolster the defense argument.

If defense attorney Parkman had just left that statement "as is" and tied it up in final arguments he might have had more success with the comparison.  But he chose to ask the next question -

"Then how can you say that Richard Scrushy ought to know what 50,000 employees are doing every minute of every day?" 

This allowed the witness the opportunity to explain the difference between knowing what the top executives in the company were doing and what FBI field agents might be doing. 

Defense Counsel has scored a few points here, but not as many as perhaps they might have been trying for with this witness. (See more in this AP story in the WSJ).

(esp)

April 23, 2005 in HealthSouth | Permalink | TrackBack (0)

Friday, April 22, 2005

Now, the Scrushy Defense Begins

The defense in the prosecution of Richard Scrushy began -- after more rounds of legal wrangling -- by focusing on the lack of any documentary evidence showing that he was aware of the fraud at HealthSouth, with the first witness being an FBI agent, who would have to be considered hostile.  This is the consistent theme underlying the "honest but ignorant CEO" defense, and the first issue raised by defense lawyer James Parkman was whether the FBI found any of Scrushy's fingerprints on documents related to the fraud.  That type of forensic evidence is usually not an issue in white collar crime prosecutions, but it presents an avenue for the defense to emphasize that there is no physical evidence of Scrushy's involvement, and no damning e-mails or memoranda from him regarding the fraud.

Before the defense began its case, Judge Karon Bowdre refused to dismiss most of the charges, but did grant the defense motion by dismissing five charges, including one of the Sarbanes-Oxley Act certification counts that alleged Scrushy forced two HealthSouth officers, including former CFO Bill Owens, to sign false certifications.  She also reserved ruling on 12 other counts relating to money laundering and obstruction, including one of the other Sarbanes-Oxley Act counts, but did not dismiss the count regarding the one certification Scrushy signed. In addition, the judge's frustration with the prosecutors rose to the surface again when she said the government's 155 page brief on the Rule 29 dismissal motion "makes the unabridged edition of `Les Miserables' an easy read" -- I guess War and Peace in the original will come with the jury instructions.

The court also dismissed the three perjury charges arising from the SEC deposition (bringing the total number of charges to 50 from the original 58), although the government has appealed that decision to the Eleventh Circuit.  If the appellate court overrules the judge's ruling that the transcript is inadmissible (see prior post with ruling here), then the government will have to re-open its case-in-chief and present the evidence.  That makes for some procedural difficulties, and no doubt would be an issue on appeal should Scrushy be convicted. Articles in the Birmingham News (here) and AP (here) discuss the beginning of the defense case and the judge's rulings. (ph)

April 22, 2005 in HealthSouth | Permalink | TrackBack (0)

Wednesday, April 20, 2005

The Scrushy Defense Begins

The government rested its case against Richard Scrushy yesterday, with the judge granting the government's request to drop two charges (earlier post here).  One mail fraud charge alleged the wrong recipient, and for one money laundering charge involving Scrushy's purchase of four Persian rugs the seller had destroyed the paperwork -- one wonders how the government could have included counts without checking who received the mailing or having secured the documentary evidence before seeking the indictment.  The defense is scheduled to begin today at 1:30, assuming U.S. District Judge Bowdre does not grant the defense's Rule 29 motion to grant a judgment of acquittal on all counts.  There is certainly a possibility that the judge will dismiss some charges, although I think it is unlikely that the core securities fraud/false certification counts will be dropped. 

Once the defense begins, the key question is whether Scrushy will testify.  Given the parade of witnesses against him, including the five Guilty CFOs, I believe he will have to testify to establish his "honest but ignorant CEO" defense.  The evasiveness of former WorldCom CEO Bernie Ebbers in his cross-examination should be a lesson to the defense team on how to prepare Scrushy for his testimony. An AP story (here) discusses the conclusion of the government's case. (ph) 

April 20, 2005 in HealthSouth | Permalink | TrackBack (0)

Tuesday, April 19, 2005

Scrushy Charges Dropping?

But minutes ago, a post here described the court's elimination of three perjury counts against Richard Scrushy, former CEO of HealthSouth.  But even more is happening today as the government is now requesting that the court drop two mail fraud counts against the accused. (See AP story here in Wall Street Jrl).  If granted it will bring the number of charges against the defendant to 52 (will the closing argument use analogies like -"we are dealing with a full deck").   

The government appears to want these two charges dropped because documents they intended to use to prove these allegations are no longer available.  Did the government lose the evidence, fail to retain it, and when did they find this out? 

So why drop the charges, as opposed to just letting the jury return a not guilty or letting the court dismiss the charges at the end of the government's case? 

Perhaps it is good faith on the part of the government, and if so this is admirable to see in a case that has suffered such controversy.  But it can also be that the government needs them out of the way as quickly as possible to avoid later claims of a spillover effect coming from improper charges.  The last thing the government wants if Scrushy is convicted, is a defense appellate argument that the charges allowed improper evidence that tainted the rest of the trial.    Then again it could be that the government can't take a chance that the defense will move to dismiss these unproved counts. 

Keeping them as charges can work both ways for the defense. 

(1) On one hand they can be used to show how absurd the government charging process is - the closing argument might be something like - they threw spaghetti at the wall and just hoped something might stick.  The defense motive may also be that some of their relevant evidence relates to these charges and it is necessary to keep them in play to present that evidence. 

(2) Alternatively, the defense cannot take a chance at failing to move to dismiss unproved charges at the close of the government case.  What happens if the prosecution should be successful on these charges?  There is also the fear of the compromise jury - -   the jury that wants to give something to the defense and something to the prosecution.  Giving away charges that could have been eliminated without jury resolution may take away a favorable card in the defense hand.

In the end, if the evidence isn't there, the charges need to go, and it is good to see the government making the first move to make this happen.

(esp)

April 19, 2005 in HealthSouth | Permalink | TrackBack (0)

Scrushy - It May Be A Flip Flop, but it Sure is Forceful!

Amazing, is the best way to describe what is occurring in the Scrushy trial.  First the judge dismisses the 3 perjury counts, then reinstates them after a notice of appeal by the government and says they will be dismissed at the appropriate time.  The Order is below.  Some thoughts on all this:

1. The judge's change in the order is necessary.  You can't dismiss the counts just because you are prohibiting the use of the deposition.  The govt. has to be given the chance to present other evidence if they have it.  Assuming they do not have other evidence of the perjury counts (as will inevitably be the case here) then a judge can dismiss when the govt. has finished presenting all its evidence in their case in chief.  But you can't dismiss the counts without first giving them the chance to present something else.  Thus, it's likely that the dismissal will happen,  but the timing was not initially correct and the correction was necessary.

2. Why is the government's notice of appeal only as to the dismissal of the counts?  Will there be a notice and appeal of the court's ruling on not allowing the deposition into evidence? 

3.  The court's order is what I would call - forceful.  This judge is not going to tolerate game playing by the government.   The court is not saying that the SEC and DOJ cannot share evidence.  The court explicitly says that "a defendant cannot succeed on a theory of a 'perjury trap' when the questions relate to a legitimate, parallel investigation"   The difference in this case is that the court is finding the conduct here to be illegitimate.  And one finds explicit items within the Order to support this conclusion.

4.  The most fascinating part of the order is footnote 6.  This footnote states that:

"The Government submitted for in camera review the email exchange between Department of Justice counsel and its Professional Responsibility Advisory Office.  Although such officer authorized the contacts at issue, the court expressly makes no determination of their propriety." 

This part of the Order is dealing with whether there has been Rule 4.2 violation (the old Thornberg Memo issue).  The court does not grant defendant's motion on this issue. But what was in the email exchange that caused the Professional Responsibility Advisory Office to side with the government?  One has to wonder whether it included the essence of the first part of the court's order? That is, did the government ask permission of their professional responsibility office to ask questions of the defendant using a civil proceeding in order to obtain evidence for a criminal trial? 

If a person is being questioned by the government and they are a target of an investigation than under internal policy of the DOJ, they should be provided with a target letter.  Was Scrushy provided a target letter before he testified?  Was he not given a target letter because this was supposedly a civil proceeding and not a criminal one? Either way, this is not something a defendant can enforce in court, but is something that the Office of Professional Responsibility (OPR) can review and internally control.  What really happened here?

(esp)

Download order.pdf

April 19, 2005 in HealthSouth | Permalink | TrackBack (0)

Monday, April 18, 2005

Problems Mount for the Government at Scrushy's Trial

As the prosecution of Richard Scrushy moves inexorably toward its third month, the government did not have a good week before Judge Karon Bowdre.  First, she dismissed the three perjury counts, which were added to the indictment last September, because of apparent coordination between prosecutors and SEC investigators immediately before Scrushy testified under oath in the SEC's investigation (see earlier post here).  I doubt the loss of the perjury counts was a major blow to the prosecution, but it does make it easier for the defense to call Scrushy to testify without him having to explain why his statements to the SEC were not false.  The Judge then dismissed one of the money laundering counts on the ground that the government had not introduced sufficient evidence linking the funds to specified unlawful activity.  Once again, not a major blow to the government's case because the core securities fraud, conspiracy, and money laundering charges remain.

The testimony of the government's expert witness about tracing the money Scrushy used to acquire various assets related to the money laundering and forfeiture counts took a turn for the worse during cross-examination last week.  The witness, William Bavis, testified that he analyzed 34,000 transactions in Scrushy's personal accounts to trace the funds from the alleged fraud.  Unfortunately, Bavis appears to have struggled with the details, and at one point said that a statement that $5 million was the product of the fraud should have been $3 million. Judge Bowdre then asked about the missing $2 million: "Did that just evaporate in your calculations?" Needless to say, when the financial expert gets confused about the numbers, and the judge starts asking about basic math, it cannot help his credibility.  While the tracing testimony does not go to the financial fraud, and Scrushy's awareness of it, if more counts start dropping off the government's case, then the core claim about Scrushy's involvement in the fraud could become more difficult to prove.  An AP story (here) discusses the testimony of the government's expert. (ph)

April 18, 2005 in HealthSouth | Permalink | TrackBack (0)

Wednesday, April 13, 2005

Scrushy - Three Less to Deal With

Yesterday, the court eliminated three of the charges faced by Scrushy, the perjury counts.  But this may be insignificant in that Scrushy still faces 55 counts including hefty penalty charges like securities fraud and money laundering. Is this why the Justice Department is not upset about this ruling?  (See Wall Street Journal)  Or is it because they are glad to just move on with the trial?

In some respects it is better for the government to have this ruling now, prior to significant evidence coming in on the perjury counts.  If there were more evidence on these now dismissed counts, then the defense might have a stronger case, if Scrushy were convicted, in claiming that his convictions were tainted by the improper evidence.  ("spillover effect").  Having the counts eliminated now removes what could be a significant appellate argument  should a conviction occur.

The government's 19 page response here, on the defense motion regarding improper cooperation between the SEC and the DOJ, was telling in that it seemed to ignore the defense request for an evidentiary hearing. Although some may consider this court ruling significant and something that may have impact on other similar cases (see quote from Professor Pam Bucy in the Wall Street Journal), this may also be a very narrow ruling that is fact specific.   This may not be a situation that a judge is saying that the SEC and DOJ can't communicate, but rather a situation of the DOJ first telling the court that there was no cooperation and later the court hearing from a witness that there was such cooperation. (See the defense motion here).  We await the Court's ruling to fully access this issue. But in the interim, the trial moves on and Scrushy still has ample allegations to contend with.  See more here.

(esp)

April 13, 2005 in HealthSouth | Permalink | TrackBack (0)

Monday, April 11, 2005

Scrushy Motion Raises Old Issue In a New Light?

In the April 9th post there is a discussion of the a new motion filed by the defense in the trial of Richard Scrushy.  The motion is here (Download Motion.pdf ) and the response is here (Download Response.pdf).

Although the motion is titled to exclude the deposition and tape recorded conversations, the prayer for relief merely asks for an evidentiary hearing on the issue. The court previously ruled against defense counsel on this issue and rejected the exclusion of the tapes, but the defense is raising this issue again in light of Neil Seiden's testimony at trial – testimony that the defense argues shows that "there was cooperation between" the SEC and DOJ in the taking of the deposition. The defense also argues that there is an ethics rule 4.2 (Alabama Rules) violation by using someone sent by the government to tape record the conversations. (shades of the Thornburg Memo days).

Admittedly there is a long line of cases that allow for parallel investigations between the SEC and DOJ (although the leading decision, Dresser was not a Supreme Court decision). But there is a more interesting aspect that is found in the government response. The government claims that there is no factual basis for the defendant's argument. This is interesting because the defense motion’s prayer is not asking the court to summarily suppress the evidence. The defense motion is merely asking for an evidentiary hearing on the issue.

If given an evidentiary hearing, the question could become whether the defense could show that the civil action was brought "solely to obtain evidence for its criminal prosecution," "or without notice to the defendants that it contemplated a criminal action." (Dresser) Perhaps difficult if one came before the other.

The real question may be whether the judge ought to give defense counsel a hearing here. Obviously this trial has been fraught with numerous delays and perhaps this motion might be seen as just that - another delay. But why is the government so vehemently against the motion (19 page response to a 7 page motion). If there really is nothing to the motion, then wouldn't they be better off having the hearing to protect the record from an appellate issue should the defendant be convicted.

(esp)

April 11, 2005 in HealthSouth | Permalink | TrackBack (6)

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)

April 9, 2005 in HealthSouth | Permalink | TrackBack (0)

Wednesday, April 6, 2005

The Prosecutor Did What?

The Scrushy trial is certainly not getting boring, that is when it has been in session.  The breaks come and go and the trial continues.  But today AP reported that the prosecutor, while questioning a witness about HealthSouth under Scruchy's leadership asked:

"Was WorldCom a Fortune 500 company?" 

"Was Enron a Fortune 500 company?"

As you might suspect, the judge did not allow these questions and admonished the jury to ignore them.  But one has to wonder why a prosecutor would ask such inflammatory questions?  Is the prosecution nervous that a conviction may not be forthcoming? Is the prosecution trying to make it so that Scrushy will have to take the witness stand to respond to prosecutorial comments? And if Scrushy is convicted, will this admonishment be sufficient to get rid of the taint?

The ABA Model Rules of Professional Conduct  in Rule 3.4 state: "A lawyer shall not: . . . (e) in trial, allude to any matter that the lawyer does not reasonably believe is relevant or that will not be supported by admissible evidence, . . "

The ABA Prosecution Function Standards, Standard 3 - 5.9 also speaks to this issue in stating, "The prosecutor should not intentionally refer to or argue on the basis of facts outside the record whether at trial or on appeal, unless such facts are matters of common public knowledge based on ordinary human experience or matters of which the court may take judicial notice."

(esp)

April 6, 2005 in HealthSouth | Permalink | TrackBack (1)

Wednesday, March 30, 2005

Another Witness Down in Scrushy Trial

The defense completed their cross-examination of witness Smith, a former finance administrator at HealthSouth, by placing his credibility at issue.  And the question being raised continues - did Scrushy know of fraud going on in the company or did he not?  And to what extent, if any, was he involved?  And can the witnesses who are testifying be trusted? 

Smith appears to have received the benefit in a lighter sentence by agreeing to testify against Scrushy.  See more in the Wall Street Journal here.

(esp)

March 30, 2005 in HealthSouth | Permalink

Tuesday, March 29, 2005

Scrushy Trial Starts Up Again

After a one week hiatus, the trial of Richard Scrushy has resumed.  After the fifth of the Guilty CFOs, Weston Smith, completed his direct testimony on Monday, March 21, the court cancelled Tuesday's session because of a juror's illness, and a planned recess for the rest of the week started a day early.  The sick juror has now been dismissed, and the cross-examination of Smith by Scrushy's lead trial counsel, James Parkman, took on what appears to be the usual line of attack questioning the veracity (and sincerity) of the witness.  An AP report (here) quotes Parkman as asking Smith "There weren't any tears coming out of your eyes, were there?" with regard to his breaking down during the direct examination.  Another interest tact was questioning Smith about his assertion of the Fifth Amendment 86 times during testimony in the SEC's request for a freeze on Scrushy's assets, a proceeding in which Scrushy also asserted the Fifth Amendment.  Will the judge permit a similar line of questioning to Scrushy if he chooses to testify?  With the trial moving in fits and starts, it will be interesting to see if the government tries to wrap up its case quickly now that it doesn't have any more Guilty CFOs to call as witnesses. (ph)

March 29, 2005 in HealthSouth | Permalink | TrackBack (0)

Tuesday, March 22, 2005

"King Richard of HealthSouth"

Weston Smith, the fifth of the Guilty CFOs (a good name for a garage band, for which HealthSouth was infamous), began his testimony in the prosecution of former HealthSouth CEO Richard Scrushy, by noting that executives referred to Scrushy as the "king" because he made every decision.  The defense objection to that description was upheld, and I'm not good enough with my Shakespeare to do much with that for any analogy, but Smith did testify that he wanted to quit the company rather than sign financial statements that would subject him to liability under the newly enacted Sarbanes-Oxley Act's CEO/CFO certification provisions.  Smith stated that Scrushy persuaded him to sign because he planned to end the fraud in the near future.  As the final CFO to testify (of the five who served the company and entered guilty pleas), the cross-examination will be equally tough as with the previous four. 

I'm wondering whether the government's case has started to get bogged down with all the CFOs, and whether the jurors are still paying attention.  It has been going on for about two months, the jury has been subjected to a parade of cooperating witnesses who agreed to plead guilty in exchange for possible leniency, and there is still a ways to go before the prosecution wraps up.  Saying that all five of a company's CFOs participated in a fraud may sound better than it plays with the jury.  Moreover, the defense may take a while, especially if, as I expect, Scrushy testifies to establish his claim that he was lied to by all those CFOs (and others).  The Ebbers prosecution was a veritable model of efficiency compared to this trial by taking only six weeks (including 8 days of jury deliberations), and I suspect that time is not on the government's side here.  An AP story here discusses Smith's testimony. (ph)

March 22, 2005 in HealthSouth | Permalink | TrackBack (0)

Wednesday, March 16, 2005

The Scrushy Trial Continues

What is the effect of the Ebbers verdict on the trial of former HealthSouth chief, Richard Scrushy?  (See the Wall Street Journal here)

Unlike the Ebbers trial, that matched Scott Sullivan against Bernard Ebbers, the trial of Richard Scrushy, former HealthSouth chief, has a list of witnesses pointing the finger at him.  Most recently we see the testimony of Tadd McVay, a former HealthSouth executive.  McVay pled guilty and according to an AP  story in the Atlanta Journal Constitution, he received a sentence of "six months of house arrest, five years on probation and ordered [ ] to pay $60,000 in criminal forfeitures and fines."

A problem that prosecutors face when they make "deals," is the reaction of the jury when they hear this evidence.  Consider the following reactions that juries can have to this type of testimony:

  • Is the person testifying truthfully, or is this testimony tainted by the desire to obtain a shorter sentence for him or herself? (e.g. MvVay was facing 15 years)
  • The defendant didn't take a deal so they must REALLY be innocent?
  • Why did the prosecution let off culpable people with these "deals" ?   
  • The defendant seems less culpable then the people testifying. (After defense cross-examination, the person on trial may seem less guilty than the ones who plead and testified?)

(esp)

March 16, 2005 in HealthSouth | Permalink

Tuesday, March 8, 2005

Scrushy Trial Resumes

The prosecution of Richard Scrushy enters its seventh week with the continuing cross-examination of Michael Martin, the third of five former CFOs who will testify for the government that Scrushy knew about and directed the accounting fraud at the company.  Martin is known for having a rather strong temper, including punching another HealthSouth employee in the face at a going-away party in 1999.  James Parkman, Scrushy's lead trial counsel, set the tone for the cross-examination early on in noting the rather light sentence Martin received -- six months of home confinement that included at least one round of golf -- by asking, ""So you don't have that bumper sticker that says, `I'd rather be playing golf than go to jail?'" [I think I need one of those.] The trial promises to continue for a while longer, with the two remaining CFOs scheduled to testify and, no doubt, an assortment of other witnesses before the defense gets its opportunity, which will likely include calling Scrushy to the witness stand. See AP story here discussing the cross-examination of Martin. (ph)

March 8, 2005 in HealthSouth | Permalink | TrackBack (0)

Wednesday, March 2, 2005

Meanwhile, Down in Birmingham . . .

The testimony of Bernie Ebbers has stolen some of the spotlight away from the trial of Richard Scrushy in Birmingham, Alabama, which continues with the testimony of a third former CFO, Michael Martin, about Scrushy's involvement in the accounting fraud.  Faced with the drumbeat of witnesses that the government hopes will link Scrushy to the revenue inflation at HealthSouth, defense counsel Jim Parkman stated at a hearing on March 1 that there is a 50% chance Scrushy will testify -- the same odds as tossing a coin, but once discussed publicly, the likelihood of Scrushy testifying is quite high.  While no witness has yet testified that Scrushy used the term "fraud" or "fraudulent," the pressure to testify to establish the defense that he was misled by so many different executives for so long (6+ years) makes Scrushy the key witness in the trial, much like Ebbers has been for the "honest-but-ignorant CEO" claim. (ph)

March 2, 2005 in HealthSouth | Permalink | TrackBack (0)

Friday, February 25, 2005

A Good Day for Ebbers, Tough for Scrushy

Ebbers- In order to succeed in the prosecution of Bernie Ebbers, the government needs to prove mens rea - that the defendant knew. Two witnesses for the defense, however, state otherwise. (See more here and here).

Scrushy- The government presented some damaging evidence against the defendant with testimony that goes to whether the accused had knowledge of improprieties occurring at HealthSouth. It's tough to get around a statement like, "We can all go to the lake and retire,"  (See more here).  But it is too soon to judge how things are going in this case.  Unlike the Ebbers trial, this case is still in the prosecution phase.

(esp)

February 25, 2005 in HealthSouth, WorldCom | Permalink

Tuesday, February 22, 2005

Will Scrushy Get Back in the Saddle?

An article in the Wall Street Journal (Feb. 22) speculates on whether Richard Scrushy will seek to regain his CEO position if he is acquitted in his criminal trial.  While that is getting a little bit ahead of things, Scrushy remains a large shareholder of the company and likely has allies in management. While Scrushy was fired as CEO in 2003, he retains his board seat and shareholders have not been asked to remove him because there has not been an annual meeting since 2003 --  the company has not filed its quarterly or annual reports since then because of problems with getting certified financial statements while the auditors prepare a restatement of prior years. HealthSouth stock was delisted by NASDAQ and only trades on  the "pink sheets," although it remains viable, having avoided bankruptcy. Even if Scrushy wanted to return to HealthSouth as an officer, he faces an SEC civil enforcement action seeking, among other things, a director & officer bar for securities law violations.  A conviction on almost any count of the indictment will likely lead to a bar. The criminal trial resumes today with more testimony (and cross-examination) about "the family" that conspired to inflate the company's earnings (see AP story here). (ph)

February 22, 2005 in HealthSouth | Permalink | TrackBack (0)