Risk Management

Ex-CFO of HealthSouth Faces Resentencing

Home detention and probation were an ''extraordinary departure'' from federal criminal sentencing guidelines, an appeals court has ruled.
Stephen TaubMay 8, 2006

A federal appeals court ruling may send Malcolm McVay to prison after all, according to the Daily Business Review, a South Florida-based legal and business newspaper.

McVay — one of five former chief financial officers charged in connection with the $2.7 billion accounting scandal at HealthSouth — served as CFO for only four months. He pleaded guilty in 2004 to conspiracy to commit wire and securities fraud and filing false financial reports, according to Reuters. Given his cooperation in the case against former CEO Richard Scrushy, prosecutors reportedly sought a prison term of five years and five months.

Last year, however, U.S. District Judge U.W. Clemon cited the defendant’s cooperation with prosecutors as well as his previous “exemplary record” and his status as a single father, sentencing the former finance chief to six months’ home detention and five years’ probation, fining him $10,000, and ordering him to forfeit $50,000.

That sentence was set aside on Friday by a three-judge panel of the 11th U.S. Circuit Court of Appeals, which ruled that “the district court’s consideration of factors unrelated to substantial assistance was improper,” according to the Review. “Moreover, under the facts and circumstances of this case, the district court’s single mention of the government’s substantial-assistance motion alone did not warrant the extraordinary departure granted in this case.”

Following a 2005 Supreme Court ruling, the newspaper noted, federal judges must consult federal criminal sentencing guidelines but are not obligated to follow them. The paper also observed that McVay was the fourth HealthSouth defendant whose sentence represented a downward departure from the guidelines and was overturned by the appellate court.

McVay will now be resentenced by Clemon, reported the Review.

The appeals court also reportedly stressed that without “truly compelling reasons,” it would be difficult to support a sentence of six months’ probation for a senior executive involved in “a multibillion-dollar securities fraud at the expense of the investing public.”

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