VideoRichard M. Scrushy, the former chairman and chief executive officer of HealthSouth Corp, said his top financial executives were responsible for his health care company's $2.5 billion accounting fraud.
Speaking during a segment of this week's "60 Minutes," Scrushy said he signed off on fraudulent accounting figures because he trusted the five CFOs who had served the company Scrushy helped found in 1984, according to the Associated Press.
Declaring that "you have to trust people," Scrushy said that "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."
When interviewer Mike Wallace pointed out that Scrushy was in charge, the former executive responded, "That doesn't mean I'm a criminal."
On Thursday, Scrushy is slated to appear before the House Energy and Commerce Committee. He is widely expected to invoke his Fifth Amendment rights against self-incrimination and thereby avoid answering questions.
The Securities and Exchange Commission has filed a lawsuit accusing HealthSouth and Scrushy of inflating earnings by at least $2.5 billion in order to meet Wall Street analysts' forecasts. So far, 15 former employees have reached plea deals in the investigation, including five of the Birmingham, Alabama-based company's former CFOs.
Scrushy has not been charged with a crime and predicted in the television interview that he will avoid jail time because he is innocent, according to the AP.
"There was no motive for me to destroy a great company that I built, a company that I loved, my fourth child," he reportedly told his interviewer. "There was no reason for me to do that."
Why did his subordinates commit fraud? "Promotions, bonuses, stock, stock options, an opportunity to make a lot of money," Scrushy said.
Meanwhile, The Wall Street Journal reported Tuesday that nine days after the SEC began investigating possible insider-trading violations at HealthSouth, attorneys working for the company's board of directors discovered evidence of possible shredding of documents relevant to the SEC probe.
The evidence was discovered in a room containing the files of four former executives, three of whom have since pleaded guilty to criminal charges related to accounting fraud, according to the paper, citing an October 29, 2002, internal report by law firm Fulbright & Jaworski LLP. The company had hired the law firm to do its own investigation into charges that Scrushy engaged in illegal insider trading.
Although HealthSouth handed the SEC the law firm's report, a statement issued on October 30, 2002, said the inquiry had "uncovered no oral interview or written document" indicating that Scrushy engaged in insider trading, according to the Journal. It also did not disclose that some documents had apparently been destroyed, according to the published account.
Quattrone Changes Horses
Former Credit Suisse First Boston investment banker Frank Quattrone testified on Tuesday that on "rare occasions" he gave input into allocations of initial public offerings, but final decisions were made by another division within the company, according to Reuters.
This is a shift in testimony for Quattrone, on trial for obstruction of justice and witness tampering. Earlier in the trial, he said he had nothing to do with IPO allocations.
However, last week prosecutors trotted out evidence showing conversations between Quattrone and others about allocations of hot stocks, according to the wire service's account.
Meanwhile, the defense rested on what was the tenth day of the trial and the last day of witness testimony.
And, over at another lower Manhattan courthouse, John Fort, a former Tyco director who ran the conglomerate before naming Kozlowski his successor in the early 1990s, said the board in 1997 voted to allow Kozlowski to make acquisitions of up to $50 million without its approval, according to Reuters.
That figure was raised to $100 million in 1999, and then doubled to $200 million the following year, Fort reportedly said under cross-examination by one of Kozlowski's defense lawyers.
Credit Quality Continues to Improve
Although global credit quality is at a nearly four-year low, things are starting to look up.
In the third quarter of 2003, there were 161 downgrades and 80 upgrades. This means the number of downgrades exceeded upgrades by the smallest margin since the first quarter of 2000, according to Standard & Poor's.
The rating actions affected long-term debt outstanding worth $265.1 billion in downgrades and $81.9 billion in upgrades.
While the third quarter saw 2.0 downgrades for every upgrade, in the second quarter there were 3.1 downgrades per upgrade, and in the first quarter, 4.6 downgrades per upgrade.
And the trends indicate further improvement during the upcoming periods. As of September 30, the proportion of entities listed with a negative bias declined to 27.5 percent, compared with 28.7 percent at the end of June.
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