Cooking The Books

Scrushy Appears In Only Interview Since Securities Fraud Scandal

At this moment, the fate of Richard Scrushy, the former CEO of HealthSouth, rests in the hands of a jury in Birmingham, Ala., which resumes deliberations Monday (May 23).

Federal prosecutors say that Scrushy cooked the books at HealthSouth, the company he founded, and that he falsely inflated its profits by almost $3 billion to push up the price of its stock.

When the fraud was exposed, the stock tanked to just pennies a share, leaving thousands of investors holding the bag. Scrushy didn't testify at his trial, but he did spell out his defense for in a 60 Minutes interview that first aired two years ago.

Scrushy admitted that his books were cooked, but insisted he had nothing to do with it.

But if the jury decides he's guilty, Scrushy could be sentenced to prison for as much as 100 years. Jury deliberations began last Thursday and will resume May 23.

Broadcast: Aug. 22, 2004
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.