Category: HealthSouth

Siegelman & Scrushy – Post Skilling – Is 1346 Really Necessary?

January 20th, 2011

The Skilling case proved consequential in the discussion before the the Eleventh Circuit in the Siegelman and Scrushy cases. Check out this story on the oral argument –

John Schwartz, NYTimes, Judges Take Another Look at Ex-Alabama Governor’s Conviction

Some may claim that it is cases like this that should influence Congress to re-examine section 1346. Perhaps – but only to void the entire statute as recommended by Justice Scalia. One lesson that should be learned from both the McNally case, and now Skilling is that if the government is criminalizing conduct, it is necessary to require strict legal lines and those lines should not cross into legitimate conduct. 1346 should be voided because it is unnecessary. The basic mail fraud statute, 1341, and wire fraud, 1343, as well as the other fraud statutes, criminalize deprivations of "money or property." The Supreme Court has clearly held that "money or property" includes intangible property (Cleveland). To include "intangible rights" is therefore unnecessary for the prosecution of criminal misconduct. If the self-dealing does not involve money or property, should we really waste government resources on the prosecution?

(esp)
Beam on HealthSouth

September 8th, 2009

Video Highlights of Aaron Beam, co-founder of HealthSouth, speaking at the Association of Certified Fraud Examiners here. As noted on the webpage written by Dick Carozza (editor of Fraud Magazine), "Beam pleaded guilty to bank fraud." He served "three months in federal prison in return for his testimony against former HealthSouth Chief Executive Officer Richard Scrushy."

(esp) (w/a hat tip to Gary Zeune)
Siegelman-Scrushy Opinion & Commentary

March 6th, 2009
As noted here, the 11th Circuit issued its decision in the appellate case involving former Governor Don Siegelman and former CEO of HealthSouth Richard Scrushy. Some of the key points in the decision –
- the court found sufficient evidence "that a reasonable juror could have concluded that Siegelman and Scrushy explicitly agreed to a corrupt quid pro quo"
- the government did not prove that "Siegelman knew that Scrushy intended to defraud Alabama of his honest services while on the Board and that Siegelman personally intended to participate in this fraud."
- although the jury was exposed to extrinsic evidence, it was harmless and the court "did not abuse its discretion in holding that there was no reasonable possibility of prejudice to the defendants arising out of the exposure of the jury to this extrinsic evidence and denying the motion for a new trial"
The court affirmed Scrushy’s convictions and reversed two counts of Seigelman’s convictions. Seigelman gets a resentencing because of the reversal of Counts 8 and 9.

What happens now? Scrushy and Seigelman have the next step to go – asking for an en banc hearing and perhaps a petition for certiorari to the Supreme Court. But the political arena may be the avenue that we hear the most noise from in the immediate future, as Karl Rove is scheduled to appear before the House Judiciary Committee. See Huffington Post, Karl Rove Agrees to Testify

(esp)
Scrushy – Prove You Won’t Flee

June 26th, 2008

The 11th Circuit Court of Appeals denied Richard Scrushy’s motion for bail pending appeal. His co-defendant former Alabama Governor Don Siegelman had been granted bail. Scrushy argued that Siegelman’s release warranted review of his claim for bond pending appeal. The court, however, ruled that Scrushy had failed to prove the preliminary step to obtain bail in that he failed to demonstrate "by clear and convincing evidence that he is unlikely to flee if he is released pending resolution of this appeal."

Order –Download scrushyorder.pdf

(esp)
Government Has Second Thoughts in Siegelman/Scrushy Appeal

June 4th, 2008
The government filed a Motion for Voluntary Dismissal of Government’s Cross Appeals in the case involving former Alabama Governor Don Siegelman and former CEO of HealthSouth Richard Scrushy. The cross-appeal had been premised on the sentences given to the pair – the government wanted higher.

So why would the government drop this appeal. Some possibilities, although whether any of these ideas have merit will only be seen down the road:
- The government realized that the sentences were appropriate and didn’t want to hurt their chances on appeal with a frivolous issue?
- Higher-ups said no dice on going forward with this cross-appeal?
- DOJ’s internal investigation is not going particularly well for the DOJ?
- Asking for draconian sentences will add pressure for Congress to look closer at why this case was originally brought?
Although the government is dropping the cross-appeal, they still want the same amount space/words allowed in their brief as if this issue were before the court. The Eleventh Circuit Court of Appeals has yet to rule on whether this dismissal warrants a modification of the brief length.

Motion – Download ygovt27smotionforvoluntarydismissalofgovt27scrossappeals.pdf

(esp) (blogging from Atlanta, Georgia)

Addendum – Scott Horton, Harper’s Magazine – Siegelman Prosecution Continues to Unravel
Scrushy Files Appellate Brief

June 2nd, 2008
Richard Scrushy, former CEO of HealthSouth, filed his appellate brief in the 11th Circuit Court of Appeals (for background see here) The 118 page brief is detailed, with key arguments focused on the following areas:
- No quid pro quo on the campaign contribution that is alleged to be related to an appointment & refusal by the court to give an instruction on the McCormick quid pro quo requirement
- Juror misconduct including juror use of the Internet
- Judicial conflict and failure to disclose the alleged conflict
- Jury composition challenge
- Admission of hearsay testimony
- Statute of limitations problem with one count
Scrushy also joins in the arguments raised by former Alabama Governor Seligman in his brief (see here). As with Seligman’s brief, the fascinating issue is the lack of a showing or a quid pro quo when a campaign contribution formed the essence of the alleged criminality. It seems likely that the government will respond that the McCormick case should not extend beyond Hobbs Act cases, and therefore should not apply to the Scrushy/Seligman cases. But without seeing the government’s brief, the defense argument seems like a strong one – since without a quid pro quo requirement we might find all campaign contributions being considered criminal activity.

The Brief – Download SCRUSHYINTIALBRIEF0713163BFINAL6.2.08.pdf

(esp)
Collateral Consequences?

January 25th, 2008

HealthSouth was often in the news during the trials of former company CEO Richard Scrushy. One trial ended with not-guilty verdicts, while the other found Scrushy guilty of charges of mail fraud, conspiracy, and bribery. (see here). But whenever a CEO of a company like HealthSouth is facing charges, there are likely to be repercussions felt by many outside the sphere of the individual. It is therefore interesting to now see that HealthSouth is selling some Birmingham, Alabama property to a developer. The Birmingham News speaks about this sale. (see here). Whether this is a collateral consequence of this investigation, however, is unknown.

(esp) (w/ a thank you to the person who called, and an apology for not being able to talk)
Settlement in HealthSouth and MD Case

December 17th, 2007

A press release of DOJ states, "HealthSouth Corporation and two physicians have agreed to pay the United States a total of $14.9 million to settle allegations that the Birmingham, Ala.-based company submitted false claims to the government and paid illegal kickbacks to physicians who referred patients for care in some of its hospitals, outpatient rehabilitation clinics, and ambulatory surgery centers."

(esp)
The Decline in Corporate Fraud Prosecutions

November 2nd, 2007

The American Lawyer has a detailed article (here) What’s Behind the Drop in Corporate Fraud Indictments describing what it calls the decline in prosecutions of corporations and senior officers for fraud since the heyday of the President’s Corporate Fraud Task Force. The article and a supporting spreadsheet (here) provides a detailed look at corporate prosecutions since 2002, when the Task Force came into existence shortly before Congress passed the Sarbanes-Oxley Act, the symbol of the government’s response to the collapse of Enron, WorldCom, and Adelphia Communications amidst allegations of accounting fraud. The analysis provides the most comprehensive listing of prosecutions of companies and their executives that I have seen, including information about sentencing and appellate dispositions of cases.

One of the core findings is the drop in corporate fraud prosecutions, particularly since 2004:

Perhaps the most curious of our findings — and one not highlighted by the Department of Justice — is the precipitous decline in the number of major corporate fraud indictments in the two years since the re-election of President Bush. After issuing detailed reports in 2003 and 2004, the task force stopped reporting on its efforts in 2005, just as corporate fraud indictments slowed to a trickle. Our analysis shows 357 indictments in major corporate fraud cases between 2002 and 2005. But only 14 indictments were identified by the Justice Department as significant corporate fraud cases in 2006. There have been only 12 major corporate fraud cases indicted so far in 2007.

There are any number of reasons for the decline, and I doubt there is one single "cause" for the slowdown in these types of cases. One explanation offered by the former U.S. Attorney for the Central District of California takes the "when life gives you lemons make lemonade" approach: the Task Force was so successful that there is no more corporate fraud, at least not on the scale seen a few years earlier. A more plausible explanation is the almost natural ebb-and-flow to cases in a particular area, be it corporate fraud or drug prosecutions. Companies change in response to the marketplace, be it products or prosecutors, and so are acting differently. That doesn’t mean they will stay out of trouble forever.

Perhaps more imporant is the decline in the number of federal prosecutors devoted to corporate crime investigations, which place significant demands on the resources of U.S. Attorney’s offices. With budget resources devoted to the war in Iraq and Afghanistan crimping other departments, and the focus on new prosecutorial initiatives, such as child pornography and terrorism, something has to give and corporate crime is an easy place to cut back when there are no spectacular bankruptcies grabbing the media’s attention. Without the manpower, cases can languish, which is especially difficult in this area because corporate fraud cases are not known for their timeliness. Filing a case about transactions involving technical accounting issues that occurred in a few years earlier just doesn’t leap off the page and demand attention.

When there are fewer resources committed to the area, the pressure to bring cases may actually decrease because it is not as stylish or important to an assessment of an office’s effectiveness. Moreover, the cases remaining from a few years ago are no longer the "low-hanging fruit" and may be just too difficult to prove without a commitment of significant resources. Recent media reports indicate that a criminal investigation of accounting fraud at bankrupt auto parts maker Delphi ended with no criminal charges, a result that might not have occurred a few years ago when there was much more pressure to bring cases.

While the American Lawyer focuses on the decline in corporate fraud prosecutions, that does not mean there is a decrease in cases in other areas that fall within the "big tent" of white collar crime — we are a welcoming niche. Prosecutions under the Foreign Corrupt Practices Act are increasing, not declining, and the globalization trend probably means this will be a growth area. [NB: For those interested in the FCPA, please be sure to check out the FCPA Blog (here), which provides outstanding coverage in this area.] Antitrust prosecutions, especially for international price fixing, have not slowed over the past couple years, and the Antitrust Division’s corporate amnesty policy — first company in the door gets immunity — seems to work in this area. The FBI has announced that public corruptioin is a top priority, and the number of Congressmen and Senators under investigation, indictment, or imprisoned recently is staggering. I doubt anyone is predicting a decline in healthcare fraud investigations, as the recent search at WellCare shows, and the Milberg Weiss prosecution may portend further scrutiny of class action law firms.

Finally, CEOs remain the target of government investigations, and I think that will continue in the future, even if prosecutions of corporations declines. Former Collins & Aikman CEO David Stockman, former ESS Inc. CEO Michael Shanahan, and former Comverse CEO Kobi Alexander are among the corporate chiefs facing charges — maybe not Alexander if he can avoid extradition from Namibia. Regardless of priorities, a case involving the CEO of a public company will be a focus for the Department of Justice, and the resources necessary will be committed to these cases, in all likelihood.

Having seen the aftermath of the collapse of the banking industry up close in the early 1990s, and watching the corporate accounting and backdating cases develop over the past few years, I believe we will see another round of corporate scandals and prosecutions in the next few years. I wish I knew where it would come from, and the continuing collapse of housing prices may give us a hint. (ph)
No Restitution for Siegelman

July 9th, 2007

According to Al.com (AP) former Alabama Governor Don Siegelman will be spared from having to pay restitution. There were clearly problems related to the original request for restitution (see here) in that Siegelman had been found not guilty on the count upon which the restitution order was premised. But in being $181,325 richer by the court telling him that he need not pay the restitution, Siegelman may have moved closer to a possible appeal by the government. The government still has time to decide whether to proceed on an appeal arguing that the sentence given to the former governor was too light. But if the government decides to challenge the sentence, it seems likely that a Libby Motion will be forthcoming. With allegations raised that the indictment may have been politically influenced (see here), a Libby Motion might present some interesting commentary.

(esp)