Risk & Compliance

Repay That Loan Again, Scrushy Is Told

Last time, the former CEO repaid the loan in HealthSouth stock, a month before the share price plummeted.
Stephen TaubApril 19, 2004

Former HealthSouth Corp. chief executive officer Richard Scrushy will be $25 million lighter when he defends charges that he led the company’s $2.7 billion fraud.

The Delaware Supreme Court affirmed a lower-court ruling that the company’s founder must repay a $25 million loan to the company, according to Reuters.

Scrushy repaid the loan once before, in July 2002 — but he repaid it with HealthSouth shares. A month later, however, the share price plummeted 60 percent after the company warned that profits would come in below expectations. The stock decline became the basis of a lawsuit filed by HealthSouth against Scrushy after he was accused of masterminding the company’s fraud, reported Reuters.

Scrushy now faces 85 separate counts of fraud and conspiracy, but he claims he was unaware of the improprieties committed by his underlings, including five former chief financial officers who have pleaded guilty to inflating the company’s earnings.

“We appreciate the fact that the Delaware Supreme Court operated on the same premise as the Chancery Court, which was that Mr. Scrushy had no knowledge about a financial fraud or other wrongdoing at HealthSouth,” said Thomas Sjoblom of Chadbourne & Parke, one of Scrushy’s attorneys, in a statement.

“However, we are obviously disappointed by the court’s decision, in which they summarily affirmed the Chancery Court decision without addressing any of our arguments,” added Sjoblom. “We are evaluating our options, including whether to seek a rehearing.”