Cooking The Books

Scrushy Appears In Only Interview Since Securities Fraud Scandal

If Richard Scrushy, the former CEO of HealthSouth, is finally found guilty of cooking his company's books, he could be sentenced to prison for 100 years or more.

HealthSouth was a Fortune 500 healthcare company that Scrushy created in his hometown of Birmingham, Ala. Federal prosecutors charge that HealthSouth, at Scrushy's direction, falsely inflated its profits by almost $3 billion, to push up the price of its stock.

But when the fraud was revealed, the stock tanked to just pennies a share, leaving thousands of investors holding the bag.

When Scrushy goes to trial early next year, he will try to convince a jury --as he tried to convince Correspondent Mike Wallace last fall -- that even though profits were inflated, he had nothing to do with it.


Whether Scrushy did or didn't do it, no one expected fraud from Birmingham's biggest benefactor.

In Birmingham, you can drive on the Richard Scrushy Parkway, and to the Richard Scrushy Campus at Jefferson State Community College. There's the Richard Scrushy Building, the Richard Scrushy Library and the Richard Scrushy Ball Field.

There used to be a Richard Scrushy Statue, but after someone spray-painted the word "thief" on it, and a radio DJ urged people to pull it down like Saddam's statue in Baghdad, it was removed.

Birmingham's top radio host Paul Finebaum has known Scrushy for 15 years -- through his rise and fall.

"I'll make you this bet, that if Scrushy is indicted and if he goes to jail, it won't be long before his name's on the outside. He'll find a way to make it 'The Richard M. Scrushy Jail,'" says Finebaum. "I don't think he'd live in a place that didn't have his name on it."

"There's no evidence of any of that," says Scrushy, when Wallace asked him if he inflated earnings and betrayed his stockholders and employees. "And many of the -- what the people have said is not true."

Scrushy told Wallace his top financial officers committed the fraud without his knowledge: "You have to rely, you have to trust people. You have to believe. You have to delegate. I mean, you hire them. You pay them good salaries. You expect them to do the right thing. And I signed off on the information based on what was provided to me. And what I was told."


Here's how the SEC describes what it calls Scrushy's scheme. Each quarter, HealthSouth's senior officers would present Scrushy with the company's actual earnings, and he would compare them to Wall Street expectations. If the actual results fell short of expectations, Scrushy would tell his management to "fix it" by recording false earnings to make up for the shortfall.

"That is not true," says Scrushy.

Scrushy started with just $50,000 and built a Fortune 500 company. He showed HealthSouth landmarks to Wallace while he described how his company began 19 years ago.

"One room with one desk and one phone. We put on a suit every day, starched shirts, wore a tie. We had no business. We had no income. We had nothing," he says. "And we started with a dream and an idea, a business card with our name on it and an idea. That's all we had."

Scrushy had a medical background, and had been a trained respiratory therapist. He saw that Medicare was paying big money to diagnose and treat the elderly, so he opened clinics that were able to do that with less overhead than the larger hospitals. After that, when he realized that athletic baby-boomers were getting sports injuries that required costly rehabilitation, he specialized in that, too, hiring famous athletes who'd been his clinics' patients to spread the word.

As his business prospered, Scrushy began to buy up other clinical chains, creating his own health-care empire.

"They're operating in 1,700-1,800 health-care facilities, treating almost 100,000 patients a day and almost 50,000 employees. And they're in all 50 states and several other countries around the world," says Scrushy.

Was he good for Birmingham for a while?

"He was excellent. We became the leader in healthcare. Particularly in sports medicine. Because of Richard Scrushy," says Finebaum.

But after the scandal, Finebaum said the folks in Birmingham despised him.

Scrushy's world began to come apart last March when one of his chief financial officers went to federal prosecutors and confessed that HealthSouth, at Scrushy's express direction, had been hugely overstating its profits for years.

Prosecutors wouldn't talk on camera before the trial, and they wouldn't let their witnesses talk to 60 Minutes, either.


So far, 17 former HealthSouth employees have pleaded guilty, including all five of Scrushy's chief financial officers. Scrushy says they did the dirty work, behind his back. But prosecutors say when the CFOs pleaded guilty, they agreed to testify under oath against Scrushy.

Wallace read from the court transcript from when CFO Michael Martin pleaded guilty:

The judge asked Martin, "Did you and Mr. Scrushy discuss the fact that the numbers contained in the filings were false?"

"Yes, sir."

"Did Mr. Scrushy direct you to do something with the numbers?" "Yes sir. He told me to inflate the numbers."

"To fix the numbers so that they met Wall Street's expectations."

Scrushy says: "So is Mike Martin just a dummy? Just some guy says go do something. Commit a fraud or a crime that would put you in jail and Mike Martin just does it? You don't believe that, Mike? I would never have done that. He is not telling the truth." says Scrushy.


Tad McVay, who was CFO until early 2003, pleaded guilty and told the judge that Scrushy was aware that the financial statement contained numbers that were incorrect.

"This is, again, it's not true. I haven't," says Scrushy. "There are 50,000 people. There are five, you have five people that have made these claims out of 50,000 people."

But Wallace points out that he's in charge. "That doesn't mean I'm a criminal," says Scrushy.

McVay told the judge that Scrushy tried to justify it by saying, "All companies play games with accounting."

"I never said that to him and he knows that," says Scrushy. "I certainly didn't commit the fraud. The people know me. They know I wouldn't instruct somebody to do that."

So what would be the motive of his CFOs to commit a fraud?

"I really don't want to get into it here. But there's, every one of them has a motive," says Scrushy, who then told Wallace that what he believed motivated his CFOs to falsely inflate earnings.

"Promotions, bonuses, stock, stock options, an opportunity to make a lot of money. There's incentives in it, tremendous incentives. Power. Greed. There's a lot of reasons for what they did. There was no motive for me to destroy a great company that I built, a company that I loved, my fourth child. There was no reason for me to do that."


"He benefited more than anybody from this fraud. There's no question about it. One hundred times fold," says Doug Jones, a former U.S. attorney in Birmingham who has filed a class action suit against Scrushy on behalf of his stockholders.

How did Scrushy make hundreds of millions of dollars from the fraud?

"In his stock options, his salaries, and his bonuses. And he has for years cultivated an image that 'This is my company, I'm the one that brought this company up. I have my finger on the pulse. I know everything that's going on in this company. I know the numbers,'" says Jones.

"He doesn't have to be an accountant to direct this fraud. Other people may be the ones sitting up there late at night, crunching the numbers and cooking the books. But that doesn't mean that when he says 'Fix it,' if that's true, that he's not as much responsible for engineering that train wreck as anybody else."

It's been suggested that Scrushy had a motive for inflating these figures. He was living high, and he wanted the stock to be high.

"First of all, I didn't phony up the figures. Second of all, you've gotta look at my buying and selling. OK," says Scrushy. "I didn't see the stock at a high."

The stock is now $3, but Scrushy sold $99 million worth of that stock when it was between $10-14.

"When you build something from nothing, you, you should have the right at some point to have some liquidity. That's what every young MBA in America is working toward," says Scrushy. "So what I did was, you know, the American dream."

Scrushy was able to get out with $99 million. But what happened to the others who held on?

"I had stock options that were going to go away - $99 million worth going away. I was going away. It was done, I was gonna lose it. What would you have done? What would anybody have done?" asks Scrushy.

What he did was sell high. And to help keep it high, he regularly gave bullish profit predictions to Wall Street analysts and interviewers.

"Well, I think the company should be north of $20 per share right now. Certainly we should be higher than we are now," said Scrushy on CNBC two years ago when the stock was selling at $15. "I would expect to see the company in the 20's and that's where we're headed, we believe."

Just 12 days later, Scrushy sold more than five million shares of his stock. Now, HealthSouth's board has barred him from even entering any offices of the company he built. And HealthSouth admits that none of its past profit numbers can be trusted.


Scrushy still lives an over-the-top millionaire's life. But now that a jury in Birmingham will probably decide his fate, he wants to downplay his wealth.

He would not let 60 Minutes videotape his four mansions, his collection of antique cars, or his wine cellar, which has bottles worth thousands of dollars apiece. But he wanted us to take pictures of him with his children, and hear from his third wife, Leslie, a Methodist preacher's daughter who believes deeply in the Lord and in her husband.

"I just think he's an amazing man. I'm so thankful to be married to him and I'm thankful every night to finish out my day with him," says Leslie.

"You know, why don't we take the testimony of people who are not felons, who are not admitted liars, and see what they have to say. Let's get their testimony. And they won't say the same thing," says Scrushy.

"I'm not going to jail. I'm an innocent man. I'm not going to jail."


But prosecutors disagree. They indicted him on 85 counts, alleging that he masterminded a massive corporate fraud, from which he made more than $250 million.

Now the company is trying to stay out of bankruptcy, while Scrushy is trying to stay out of jail. He pleaded non-guilty, is free on a $10 million bond and is preparing to go to trial next January.