Prosecutors are preparing to unveil criminal charges against former HealthSouth Corp. chief executive Richard M. Scrushy as early as today, according to two sources familiar with the investigation.
Scrushy, 51, is expected to be charged with money laundering, conspiracy and securities fraud, the sources said. Scrushy also could face criminal asset forfeiture counts seeking millions of dollars that he allegedly reaped as part of a $2.5 billion scheme to boost the stock price of the Birmingham rehabilitation hospital company, according to sources.
The charges will be filed by U.S. Attorney Alice H. Martin. Since March, prosecutors and FBI agents in Birmingham have been probing what Scrushy knew about the earnings manipulation as well as connections between HealthSouth and other companies in which Scrushy or his relatives had invested. Fifteen former executives at the company, including all five of its chief financial officers since the mid-1980s, have pleaded guilty to taking part in accounting tricks that misled investors and lenders or to failing to file proper tax returns.
A Justice Department spokesman declined comment yesterday, as did a representative for Scrushy's lawyers.
Scrushy has mounted an increasingly public campaign to defend his reputation in recent weeks, appearing on the television newsmagazine "60 Minutes" and launching a Web site, www.richardmscrushy.com, to declare his innocence. Scrushy invoked his Fifth Amendment right against self-incrimination at a congressional hearing into HealthSouth's financial troubles in October.
The Securities and Exchange Commission already has brought civil fraud charges against both HealthSouth and its former chief executive. Scrushy, who founded the company and presided over its aggressive acquisitions strategy over the last decade, has vigorously denied wrongdoing. Earlier this year his lawyers persuaded a judge to lift a freeze on his assets after an unusual, extended hearing into the evidence in the case. Since then Scrushy has ignited controversy in the close-knit Birmingham business community for participating in boat races and buying waterfront property using another company he controls.
HealthSouth, which operates more than 1,600 rehabilitation hospitals and other facilities across the country, has pared employees and sold assets under new managers and thus far has avoided filing for bankruptcy protection.
Yesterday the company announced that a group of creditors served notice of default on senior notes issued by HealthSouth that may total as much as $2.6 billion. In a prepared statement, interim HealthSouth chairman Joel C. Gordon sought to portray the creditors' stance as a negotiating move.
"Today's action we believe is a very public tactic by the holders of these notes to try to extract greater value at the expense of our other stakeholders," Gordon said.
The company has about 60 days to work out a compromise with the note holders before they can demand accelerated payment, a spokesman said.
Kemp Dolliver, a health care analyst at SG Cowen Securities Corp., said yesterday's development does not automatically mean that HealthSouth will move toward a bankruptcy filing. Instead, he said, "it's fair to look at this as part of the negotiating process."
The investigation into what went wrong at HealthSouth is ongoing. The House Energy and Commerce Committee will hold a hearing Wednesday at which current and former board members, outside accountants and investment bankers will be asked about how they failed to detect fraud at the company.
Scrushy, 51, is expected to be charged with money laundering, conspiracy and securities fraud, the sources said. Scrushy also could face criminal asset forfeiture counts seeking millions of dollars that he allegedly reaped as part of a $2.5 billion scheme to boost the stock price of the Birmingham rehabilitation hospital company, according to sources.
The charges will be filed by U.S. Attorney Alice H. Martin. Since March, prosecutors and FBI agents in Birmingham have been probing what Scrushy knew about the earnings manipulation as well as connections between HealthSouth and other companies in which Scrushy or his relatives had invested. Fifteen former executives at the company, including all five of its chief financial officers since the mid-1980s, have pleaded guilty to taking part in accounting tricks that misled investors and lenders or to failing to file proper tax returns.
A Justice Department spokesman declined comment yesterday, as did a representative for Scrushy's lawyers.
Scrushy has mounted an increasingly public campaign to defend his reputation in recent weeks, appearing on the television newsmagazine "60 Minutes" and launching a Web site, www.richardmscrushy.com, to declare his innocence. Scrushy invoked his Fifth Amendment right against self-incrimination at a congressional hearing into HealthSouth's financial troubles in October.
The Securities and Exchange Commission already has brought civil fraud charges against both HealthSouth and its former chief executive. Scrushy, who founded the company and presided over its aggressive acquisitions strategy over the last decade, has vigorously denied wrongdoing. Earlier this year his lawyers persuaded a judge to lift a freeze on his assets after an unusual, extended hearing into the evidence in the case. Since then Scrushy has ignited controversy in the close-knit Birmingham business community for participating in boat races and buying waterfront property using another company he controls.
HealthSouth, which operates more than 1,600 rehabilitation hospitals and other facilities across the country, has pared employees and sold assets under new managers and thus far has avoided filing for bankruptcy protection.
Yesterday the company announced that a group of creditors served notice of default on senior notes issued by HealthSouth that may total as much as $2.6 billion. In a prepared statement, interim HealthSouth chairman Joel C. Gordon sought to portray the creditors' stance as a negotiating move.
"Today's action we believe is a very public tactic by the holders of these notes to try to extract greater value at the expense of our other stakeholders," Gordon said.
The company has about 60 days to work out a compromise with the note holders before they can demand accelerated payment, a spokesman said.
Kemp Dolliver, a health care analyst at SG Cowen Securities Corp., said yesterday's development does not automatically mean that HealthSouth will move toward a bankruptcy filing. Instead, he said, "it's fair to look at this as part of the negotiating process."
The investigation into what went wrong at HealthSouth is ongoing. The House Energy and Commerce Committee will hold a hearing Wednesday at which current and former board members, outside accountants and investment bankers will be asked about how they failed to detect fraud at the company.
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