Scrushy settles SEC lawsuit over HealthSouth fraud for $81 million

Associated Press • Apr 23, 2007 at 9:36 AM

BIRMINGHAM, Ala. - Fired HealthSouth Corp. CEO Richard Scrushy reached an $81 million settlement to end a government lawsuit in a huge accounting fraud, but he will pay less than $10 million - maybe much less - as his attorneys contend he is running out of money.

A federal judge on Monday approved the settlement of the suit filed by the Securities and Exchange Commission, which billed the financial deal as one of the SEC's largest against an individual.

While not admitting that he did anything wrong, Scrushy agreed to give up $77.5 million that the government claimed he profited from in the $2.7 billion fraud at HealthSouth, and he agreed to pay another $3.5 million in civil penalties.

Rather than writing the government a check for the total amount, Scrushy will get credit for $71.5 million he already has paid or forfeited in three other cases linked to HealthSouth. That leaves Scrushy owing a balance of $9.5 million, but the total could be reduced further by other cases.

"It could go down to zero," said Scrushy attorney David Russell.

Even if the final amount doesn't go that low, Russell said, Scrushy might not be able to pay anything else because he already has spent more than $30 million on attorney fees.

"There's a serious question on his ability to pay, and that's built into the papers," said Russell, of Atlanta.

The agreement gives Scrushy 90 days to submit proof if he claims he is unable to pay. Under the agreement, Scrushy does not have to count the value of his retirement accounts or Birmingham-area estate when computing his worth.

The SEC initially said it was seeking as much as $785 million from Scrushy.

"We're pleased with the settlement," John Worland, the lead SEC attorney on the case, said in Washington. "It recognizes that Mr. Scrushy has several lawsuits outstanding that seek similar relief ... but it ensures that Mr. Scrushy will in total pay $81 million to injured investors, and that is one of the largest settlements the SEC has achieved with any individual."

The settlement was approved by U.S. District Judge Inge Johnson. The lawsuit was set to go to trial on June 4, but the court had ordered mediation in hope of reaching a deal.

The agreement ends a lawsuit the SEC filed four years ago when the HealthSouth fraud was first publicly revealed. Since then, 15 former HealthSouth executives pleaded guilty and another was convicted by jurors.

Scrushy was acquitted on all charges in the fraud and has since become a TV preacher in HealthSouth's hometown of Birmingham. He is awaiting sentencing in federal court in Montgomery in a separate bribery case related to his years at HealthSouth, which he helped found.

Scrushy, convicted with former Alabama Gov. Don Siegelman, is seeking a new trial in that case.

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