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HealthSouth's Embattled Founder Denies Fraud

Lynn Kenny was also the manager of Scrushy's country music band, Dallas County Line.
Marisa Penaloza, NPR News /
Lynn Kenny was also the manager of Scrushy's country music band, Dallas County Line.
Richard Scrushy has many buildings named after him in the Birmingham, Ala., area, including this library.
Marisa Penaloza, NPR News /
Richard Scrushy has many buildings named after him in the Birmingham, Ala., area, including this library.

In Birmingham, Ala., 11 corporate executives from a large hospital chain called HealthSouth have admitted their roles in connection with a scheme to boost the company's stock value by claiming $2 billion in phantom profits. Federal investigators say the fraud went on for close to 20 years, and at least a dozen people knew about it.

One man who should have known about the fraud insists he didn't -- HealthSouth's charismatic founder and CEO, Richard Scrushy. He claims he was duped by his underlings, even as his former chief financial officers say Scrushy masterminded the scheme.

No criminal charges have been filed against Scrushy. NPR's Snigdha Prakash reports on the man sometimes called "Birmingham's Donald Trump."

Prakash found a community divided on who Scrushy really is -- "A self-made man whose ostentatious lifestyle and penchant for self-promotion aroused envy, admiration and contempt," she says. He has mansions, boats, bodyguards, buildings named after him -- even his own country music band, Dallas County Line. Not bad for a man who rose from a gas station attendant to become CEO of a Fortune 500 company.

Bryan Marsal, a senior partner at the restructuring firm Alvarez and Marsal -- charged with trying to untangle HealthSouth's finances -- says the "massive fraud" runs deep. "I've never seen the number of people involved in the fraud, the level of fraud, the number of the accounting entries that took place... How they were able to keep this secret for so long is really amazing to me."

In court filings, all five men who've been chief financial officers of HealthSouth since it went public in the mid-1980s tell the same story of how the fraud was perpetrated: Each fiscal quarter, shortly before HealthSouth announced its earnings, the chief financial officer would go to HealthSouth's CEO to report the actual earnings. The CEO would pick a higher earnings number -- in line with what Wall Street analysts were expecting. The CEO in all cases was Scrushy, though he was not specifically named in the allegations.

On March 18, 2003, just before a raid on HealthSouth's headquarters, the FBI secretly recorded a conversation between then-CFO Bill Owens and Scrushy. Owens, who has since pled guilty to fraud, was wearing the hidden tape recorder.

A portion of the recording has been made public. In it, Owens is heard telling Scrushy that his wife is worried that Owens would end up in jail if he keeps signing what she calls phony financial statements. Scrushy urges Owens to sign the statements anyway, saying that Owens can "go quarter to quarter and fix everything you want to fix."

Lynn Kenny, Scrushy's personal photographer for a decade and road manager for Scrushy's band, says he understands why HealthSouth executives remained silent about the scheme. "I think their loyalty to Richard was unquestionable," Kenny tells Prakash. "I think they loved him as they did the company."

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Snigdha Prakash
Pieces by National Desk reporter Snigdha Prakash can be heard on NPR's All Things Considered and Morning Edition. The majority of Snigdha's past reports have focused on topics related to entrepreneurship, business, banking and the economy.
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