HealthSouth’s Richard Scrushy Found Liable for $2.9 billion

Former HealthSouth Corp boss Richard Scrushy was ordered to pay $2.9 billion on June 18 after a judge found him responsible for an accounting fraud that nearly brought down the hospital chain.

Scrushy is serving a seven-year prison term in a bribery case, and was acquitted of criminal charges related to the massive HealthSouth fraud in 2005.

“Scrushy knew of and actively participated in fraud,” state court Judge Allwin Horn says in a written ruling.

According to reports, John Haley, a lawyer for the shareholder plaintiffs, said Scrushy’s net worth was estimated at about $275 million in 2005. Since then, Scrushy has agreed to pay $81 million to settle U.S. Securities and Exchange Commission charges that he directed the fraud, without admitting any wrongdoing.

“He is still worth a substantial amount of money,” said Haley, of law firm Hare Wynn Newell & Newton in Birmingham.

HealthSouth was found in 1984 by Scrushy and as built it into a large rehabilitation medical company. Known for a lavish lifestyle and his role as a Christian minister, Scrushy was accused of directing HealthSouth to overstate revenues by at least $2.6 billion between 1996 and 2002.

Michigan Attorney General Mike Cox announced a $109 million national settlement in a class action lawsuit against accounting firm Ernst & Young last week.

The firm was accused of failing to expose fraud taking place at HealthSouth Corporation when it performed audits of the company. Previously, HealthSouth settled allegations of fraud that led to losses by pensioners and investors for $445 million.

E&Ywas alleged to have made several accounting errors during their audits of HealthSouth, which admitted to overstating its income by more than $2.8 billion.

 Cox said the State of Michigan Retirement Systems lost an estimated $33 million. In other pension cases, Cox earned a $24.5 million settlement against Tyco and helped negotiate a $1.4 billion agreement with Comerica Bank that required the bank to release frozen investments.