Accounting & Tax

SEC Pursues Civil Case Against Scrushy

His acquittal ''establishes only that criminal prosecutors were unable to prove all of the necessary factual elements of the alleged crime beyond a...
Stephen TaubJuly 8, 2005

The Securities and Exchange Commission asked a federal judge for permission to pursue civil charges against Richard Scrushy — co-founder, former chairman, and former chief executive officer of HealthSouth Corp. — one week after a jury found him not guilty of criminal charges, according to published reports.

The SEC asserted in a filing in U.S. District Court in Birmingham that Scrushy’s acquittal on criminal accounting fraud charges offers “no legal or factual basis” to strike its claims that Scrushy directed a massive accounting fraud at HealthSouth and engaged in insider trading and other violations, according to Reuters.

The regulator also pointed out that in a civil case, the prosecution’s required standard of proof is “by a preponderance of the evidence,” the wire service noted. Scrushy’s acquittal “establishes only that criminal prosecutors were unable to prove all of the necessary factual elements of the alleged crime beyond a reasonable doubt,” wrote SEC attorney John D. Worland Jr., according to the AP.

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“One issue crucial to the civil case — but irrelevant to the criminal matter — is whether Scrushy departed so far from the ordinary standard of care” required of a senior company officer that he is civilly liable for fraud, said the SEC filing, according to the Reuters report.

U.S. District Judge Inge Johnson had put the SEC’s civil case on hold for more than two years ago as federal prosecutors pursued their criminal case, noted The Wall Street Journal. The commission is seeking disgorgement of $786 million plus interest from Scrushy, and to bar him from serving as an officer or director of a public company, according to SEC filings as well as the Journal.

On June 28 Scrushy was acquitted by a federal jury on all 36 criminal counts against him, including conspiracy and securities fraud. The trial began in January; the verdicts came on the 21st day of deliberations overall.

In the criminal case, Scrushy was accused of recording as much as $2.7 billion of fake revenues on the company’s books over six years and correspondingly adjusting the balance sheets and paper trails. He also had the distinction of being the first CEO charged under the Sarbanes-Oxley Act of 2002 — specifically, for knowingly filing a false report with the Securities and Exchange Commission.