Judge Throws Out Fraud Claims Against HealthSouth’s Ex-CEO

The judge in the government’s civil lawsuit over the huge earnings overstatement at HealthSouth Corp. threw out fraud claims against fired Chief Executive Richard Scrushy, who was previously acquitted on criminal charges in the scheme.

U.S. District Judge Inge P. Johnson said the two fraud counts contained in the suit -- the third version of the case filed by the Securities and Exchange Commission -- weren’t specific enough.

“The second amended complaint contains argument, speculations, hypotheticals and perhaps an outline of closing statements, none of which are appropriate in a complaint,” Johnson said in a 15-page ruling late Tuesday.

She gave prosecutors 15 days to refile the fraud counts.

Johnson refused to dismiss five other claims against Scrushy, who is still accused of aiding and abetting in false financial reporting, false record keeping and failing to maintain proper internal controls at HealthSouth.

The SEC has said it is seeking $785 million in civil penalties against Scrushy, but it wasn’t clear how Johnson’s ruling could affect the possible fines and forfeitures he could be ordered to pay.

Lawyers for Scrushy and the government are scheduled to begin mediation talks Jan. 18 that could lead to a settlement. HealthSouth previously settled its portion of the case for $100 million.

Jurors acquitted Scrushy in June on multiple criminal charges of leading a $2.7-billion fraud at the Birmingham, Ala.-based medical services chain. The panel rejected government claims that Scrushy directed a scheme to overstate earnings to meet Wall Street expectations.

Scrushy has since been indicted in Montgomery in a bribery scheme involving former Alabama Gov. Don Siegelman. Scrushy contends the case is government retaliation for his acquittal in the fraud.

Fifteen former HealthSouth executives pleaded guilty in the earnings overstatement, and jurors convicted another one, Hannibal “Sonny” Crumpler, this month.

Crumpler, a former division controller, was ordered by a jury to forfeit almost $1.4 million and could be sentenced to as long as 15 years in prison and fined an additional $1.3 million.