HealthSouth Fraud Trial Continues
STEVE INSKEEP, host:
This is MORNING EDITION from NPR News. I'm Steve Inskeep.
Today a jury continues deliberating the fate of Richard Scrushy. The former health-care executive is the first CEO prosecuted under a new law against corporate fraud. The Sarbanes-Oxley law imposes new auditing standards and also requires executives to personally sign off on their books. Richard Scrushy's signature beneath allegedly bogus figures led to one of the charges against him. In a moment, we'll report on the wide-ranging effect the law is having on American businesses. First we have an update on the trial from Carrie Johnson, a financial reporter for The Washington Post.
Ms. CARRIE JOHNSON (Reporter, The Washington Post): Good morning.
INSKEEP: This jury has been deliberating for seven days. Have you been able to get any sense of what's taking them so long?
Ms. JOHNSON: The jury has sent out at least three notes indicating they're having trouble coming to terms with the first criminal charge against him, which is conspiracy. They appear to be having a hard time reaching unanimity on that charge, and they've asked the judge repeatedly for help in deciphering the jury instructions. Last week the judge told them, in essence, `If you're having a hard time, move on to some of the other counts against Scrushy,' which include the Sarbanes-Oxley charge.
INSKEEP: When you talk to defense lawyers and prosecutors, do you have any sense for who's more nervous?
Ms. JOHNSON: Well, the longer deliberations go on, the more nervous prosecutors generally get, because it signals the defense has at least somewhat successfully persuaded jurors that there is some reasonable doubt.
INSKEEP: And, of course, one of the charges against Scrushy has to do with the fact that he did sign financial statements that the government now says were fraudulent. That's the Sarbanes-Oxley violation. How important is that count in this trial?
Ms. JOHNSON: That count is important for two reasons, one of which is that Scrushy faces 20 years in prison on that charge alone if he is convicted. The second reason is that he is the first major corporate leader to be prosecuted under that charge, and the government has massed quite a few guilty pleas from other HealthSouth executives. To lose this case would be an embarrassment to the government.
INSKEEP: How is it plausible that the CEO could get away after 15 other people at HealthSouth pleaded guilty?
Ms. JOHNSON: Scrushy's defense team has argued that he didn't catch the fraud, but neither did auditors, lawyers, the board members or an array of other people.
INSKEEP: Very much like Bernie Ebbers' defense at WorldCom.
Ms. JOHNSON: That's right. But the Sarbanes-Oxley law was passed specifically to help get rid of that ignorant CEO defense by forcing executives to sign on the bottom line on their financial statements. So Scrushy's defense, in essence, is the first test of this post-Sarbanes-Oxley.
INSKEEP: Do you have a sense of how closely other executives are watching this case?
Ms. JOHNSON: Yes. I've heard that people are watching it pretty closely both within the regulatory community in Washington and in boardrooms around the country, in part because this case occurred shortly after the law was passed and executives at HealthSouth, the company Scrushy ran, explicitly cited the Sarbanes-Oxley law as a reason they did not want to continue with the fraud.
INSKEEP: So you have evidence here that in at least one company, which is now being prosecuted, that the law made a difference.
Ms. JOHNSON: Indeed. One of the CFOs, Weston Smith, testified that he was scared of signing his name to false financial statements, and other underlings did so as well.
INSKEEP: Carrie Johnson, of The Washington Post, thanks very much.
Ms. JOHNSON: Thank you.