Risk Management

Former HealthSouth Execs Plead Guilty

Ex-CEO Richard Scrushy has other ideas; in anticipation of his trial, he's hosting a local morning television show.
Stephen TaubMarch 4, 2004

Two former executives of HealthSouth Corp. have pleaded guilty to charges related to contracts with a hospital in Saudi Arabia, according to the U.S. Department of Justice.

Former vice president Vincent Nico agreed to plead guilty to a wire fraud charge contained in a criminal information that was filed at U.S. District Court in Birmingham, Alabama. Former executive vice president Thomas Carman agreed to plead guilty to a separate criminal information charging him with making a false statement to the FBI.

Hearings on their pleas will be scheduled at a later date.

The charges stem from HealthSouth’s agreement to provide staffing and management services for a 450-bed hospital in Saudi Arabia. Under HealthSouth’s contract with a Saudi foundation, which built and owned the hospital, HealthSouth was to receive $10 million annually over a five-year term.

According to the criminal informations, the foundation’s director general solicited a $1 million payment from HealthSouth, ostensibly as a “finders fee.” Against the advice of counsel, HealthSouth allegedly agreed to pay the director general $500,000 per year for a five-year period in return for his agreement to execute the contract on behalf of the foundation, added the Justice Department.

In order to conceal the true nature of the arrangement, HealthSouth officers including Nico and Carman allegedly arranged for a bogus consulting contract with a HealthSouth-affiliated entity in Australia, according to the complaint. Until the scheme was detected in 2003, funds were wired to Australia, then wired to the foundation’s director general in Saudi Arabia.

The criminal information against Nico charges that he violated his duty of honest services to HealthSouth by accepting a kickback of $125,000 per year from the $500,000 paid to the foundation’s director general. Under this agreement, Nico received a total of $375,000, plus $631,502 from HealthSouth that he demanded as a bonus, based on his claim that he had performed exemplary service for the company in securing and maintaining the contract.

Under the plea arrangement, Nico has agreed to forfeit more than $1 million — the total amount he received from the director general and as a bonus from HealthSouth. If convicted, he also faces a maximum sentence of 20 years in prison and a fine of $250,000.

The criminal information against Carman charges that he made a false statement to the FBI when he claimed that the consulting contract with the director general was intended to be a legitimate arrangement under which real services were to be provided. If convicted, he also faces a maximum sentence of five years in prison and a fine of $250,000.

Nico and Carman have both agreed to cooperate with the investigation, which is active and ongoing, the Justice Department added.

Former HealthSouth CEO Richard Scrushy, on the other hand, has his own ideas.

Scrushy, who is awaiting trial in August on charges that he orchestrated the company’s $2.7 billion accounting fraud, began hosting a local morning television show in Birmingham, Alabama, this week. In truth, it’s more of an infomercial; the embattled executive bought the daily half-hour slot for 12 months.

Using a folksy manner and repeated biblical references, Scrushy compared the media to “old Satan sneaking in the back door” and said he hoped to use the medium to deliver what he called truth “without negative media spin,” according to Reuters.

“It seems fairly transparent in terms of trying to sway a jury,” said Doug Jones, who is representing shareholders in a civil suit against HealthSouth, according to the wire service. “It is an attempt to neutralize the adverse publicity generated by a government indictment, guilty pleas, and civil lawsuits.”

Scrushy has pleaded not guilty to 85 criminal counts in the company’s accounting fraud. Fifteen former HealthSouth executives have pleaded guilty to various fraud charges.

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