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Alabama court begins hearing shareholder lawsuit against ex-HealthSouth CEO

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] Alabama's Jefferson County Circuit Court on Monday began hearing a $2.6 billion derivative lawsuit brought by HealthSouth shareholders against company founder and former CEO Richard Scrushy for his alleged role in an accounting fraud scheme at the company. The shareholders claim that Scrushy encouraged others to purposefully inflate company profits in order to qualify himself and other executives for bonuses, directed company contracts towards other companies he owned, traded the company's stock based on insider information, and misused other company resources for his own benefit. Lawyers for Scrushy argue that he did not know that profits were being inflated by other executives and denied other allegations of wrongdoing. In 2006, shareholders won an unjust enrichment lawsuit against Scrushy, recovering some of the bonuses paid to him and others based on the erroneous earnings reports. In 2007, the US Securities and Exchange Commission settled its accounting fraud claims against Scrushy for $81 million. In 2005 Scrushy was acquitted of criminal charges of wire and mail fraud, money laundering, conspiracy, and violations of the Sarbanes-Oxley Act in relation to scheme. Scrunchy was, however, convicted in 2006 of unrelated federal bribery and fraud charges for paying campaign debts of former Alabama governor Don Siegelman in exchange for a seat on a state-operated review board that regulates Alabama hospitals. In March, a three judge panel of the US Court of Appeals for the Eleventh Circuit upheld that conviction.

Full post as published by JURIST - The Paper Chase on May 12, 2009 (boomark / email).