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This podcast is supported by FX's English Teacher, a new comedy from executive producers of What We Do in the Shadows and Baskets. English Teacher follows Evan, a teacher in Austin, Texas, who learns if it's really possible to be your full self at your job, while often finding himself at the intersection of the personal, professional, and political aspects of working at a high school. FX's English Teacher premieres September 2nd on FX. Stream on Hulu.
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This episode of Swindled may contain graphic descriptions or audio recordings of disturbing events which may not be suitable for all audiences. Listener discretion is advised. Ladies and gentlemen, there can be no clearer choice for Governor of Alabama than the choice between Bob James and Don Settleman.
The people of Alabama deserve a governor with the will to be governor and the ability to actually get something done. That is not Fobb James. That is Don Sigelman. The people of Alabama deserve a governor who will give the students of this state a voluntary preschool program, state-of-the-art computers, and college scholarships for every high school graduate and pay for it with an Alabama lottery for education. That certainly is not Fobb James. That is Don Sigelman.
The people of Alabama deserve a governor who has a plan to fight school violence. That's not Fobb James. The people of Alabama deserve a governor who will get rid of dangerous portable classrooms. That is not Fobb James. The people of Alabama deserve a governor who will raise the standards and raise the quality of education in K-12. That is not Fobb James. That is Don Sigelman.
Republicans in Alabama were terrified of Don Siegelman, and not just because he had a black belt in karate. No, Don Siegelman was a Democrat. A charming, good-looking, experienced Democrat with enough southern twang to flip votes in the Bible Belt like Bill Clinton or Jimmy Carter, with the future in national politics looking like an absolute certainty. Don Siegelman was elected the 51st governor of Alabama in 1999,
He had already served as the state's lieutenant governor. Before that, he was Alabama's attorney general. Before that, he was the secretary of state. Siegelman's star had been steadily rising over the years. Then, in a rare occurrence, against their lifelong conditioning, the people of Alabama voted for a Democratic governor.
With Don Siegelman in charge, the automotive industry thrived in Alabama. Mercedes-Benz, Toyota, and Honda all committed to building major assembly lines in the state. Siegelman also presided over seven electric chair executions, which included the first female executed in Alabama since 1957. All this fun and success was enough to make an Alabama Republican so angry they could marry a child.
But nothing made the weird little loose skin flaps on their necks tremble more than Siegelman's pet project. Don Siegelman, the absolute monster, introduced a referendum to establish a state lottery to fund education.
Siegelman campaigned on this idea. The people of Alabama elected him because of this idea.
Nevertheless, the referendum was defeated, and Alabama's education ranking among the states continues to languish at the bottom. Despite the defeat, Don Siegelman remained popular in Alabama. According to the Associated Press, he was re-elected as governor in 2002 in a closely contested race with U.S. House Representative Bob Riley, but the victory was short-lived.
By the next morning, the vote had changed. There had been a voting machine malfunction in Baldwin County, apparently, one of the most Republican counties in the state. A third and final set of updated vote totals had appeared on the probate court's website in the middle of the night. The only change was that Don Siegelman had 6,300 fewer votes than he had a few hours earlier, just enough to flip the race to Bob Riley. No other races on the ballot were affected.
Adrian Johns, the Baldwin County judge and Bob Riley supporter, sealed the votes and moved to certify the results immediately on Wednesday after the election, even though tradition and statute suggested Friday at noon. And Alabama's Republican Attorney General Bill Pryor announced that since the votes had already been certified, any recount of these sealed material could not occur without a court order. In other words, anyone who tried to count the votes would be jailed.
Witnesses say that Bob Riley's chief of staff, Dan Ganz, was in Baldwin County that night with a laptop. Dan Ganz was reportedly a voting technology expert. It's been suggested that Dan Ganz and the Baldwin County Republicans fudged the numbers behind closed doors.
and the voting data all but confirms it. A peer-reviewed analysis of the results found clear data manipulation and statistical abnormalities, but any attempt to change the result of the election at this point would require an arduous court battle. It could take months, probably years. It could potentially tear the state apart. For Don Siegelman, it just wasn't worth it. So on November 6, 2002, he conceded.
And I ask that God's light continue to shine upon the great state of Alabama. Thank you, God bless you, and good night. Governor Don Siegelman announcing what he calls a painful decision, that he is dropping his request for a recount, saying Congressman Bob Riley will be Alabama's next governor. Moving on now to other news, a federal judge says the Ten Commandments monument in the Alabama Judicial Building violates the Constitution's ban on government promotion of...
On the other side of town, the Bob Riley train was ushering in a new era full steam ahead, quite literally. The new governor of Alabama was transported to his ceremonial stage via locomotive where he declared it a new day in the heart of Dixie with the help of a little tune. ♪ We work in the fields to bring it on ♪ ♪ Don't see the money kept you in the wrong way ♪
Alabama was Riley country and do you know who was not welcome in Riley country? Wrong. I mean probably but that's not who I was referring to this time. Hello I'm Governor Bob Riley. I believe we're blessed to live in Alabama.
We have a quality of life that is unmatched anywhere else in the world. I never want to see anything happen that would degrade our quality of life. And there's no doubt in my mind that gambling does degrade our quality of life. It corrupts Alabama and hurts the people who live here. But every year, there's an effort in the legislature to expand gambling. So I signed an executive order in December to create a task force on illegal gambling.
Gambling would not be tolerated in Alabama. Why not? Because Alabama is a morally righteous state that would never allow such cultural degradations within its borders.
Just kidding. It's because of corruption. You see, gambling is tolerated on reservations in Mississippi, a bordering state of Alabama. Places like the Choctaw-owned Pearl River Resorts in Philadelphia, Mississippi. Those places depend on tourists from Alabama who can't legally gamble in their own state. So these casinos inject their money into Alabama politics to make sure it always stays that way.
Don Siegelman's proposed state lottery was too close to legalized gambling for the Choctaw's comfort, and Alabama Republicans wanted Siegelman stopped for no other reason than he was a Democrat. Strange bedfellows were made.
Jack Abramoff in his book admits that he put $20 million of Indian casino money in Alabama first to defeat me in 1998 and to defeat the lottery campaign in 1999 and then to defeat me again in 2002. Jack Abramoff is a notorious lobbyist, later sentenced to six years in prison on a fraud conviction related to a different casino.
He was the bag man for an underground network of Republican money. Millions of dollars were funneled into Alabama to help Bob Riley defeat Don Siegelman. Alabama's new gambling task force was Bob Riley's tip of the cap to his Native American neighbors to the west. Thanks for the money. Oh, and all of this land and everything.
According to Don Siegelman, who followed that money, all roads led to President George W. Bush's Chief of Staff, Karl Rove, who Siegelman claims wasn't finished abusing his power. When whispers surfaced about Siegelman planning to make another run for governor in 2004, the Department of Justice put a stop to Siegelman's political dreams by indicting him for fraud.
U.S. Prosecutor Alice Martin alleged that Don Siegelman and his cronies had conspired with a doctor to rig a Medicaid contract. There were also accusations that the former governor had accepted extravagant gifts from his supporters.
However, on day one of the trial, a judge threw out most of the prosecution's evidence. The case was laughable. All charges against Don Siegelman were dropped. There is no question that Carl Wove's fingerprints are all over my case. From the initial investigation by his client, who was the attorney general, to the prosecution by his best friend's wife,
to his partner who was involved in stealing my election in 2002. His bag man, Jack Abramoff, was pumping a bunch of money into my race to defeat me. There's just no doubt in my mind. There may be a doubt in his mind, but there's no doubt in my mind that Carl did direct the Department of Justice to pursue me.
After walking away clean from the trumped up federal fraud case, Don Siegelman was re-energized and so were his supporters. Poll numbers showed that he could beat Governor Bob Riley again in the 2006 election and that's what he planned to do. But once again, the United States Department of Justice had other plans. Don Siegelman was indicted for a second time during the primary season for the 2006 governor's race, resulting in his defeat.
This time he was accused of accepting a bribe in exchange for a seat on the state hospital regulatory board. Siegelman claims the charges are politically motivated. It was an act of revenge from George W. Bush's Department of Justice, which had recently suffered two embarrassing defeats.
The first was Don Siegelman's own 2004 trial, where a judge had basically ruled that there was no case. And the second unrelated case was Richard Scruci, the founder and CEO of rehabilitation giant HealthSouth, who had just walked free from his own fraud trial, even with dozens of eyewitnesses testifying against him.
Now, federal prosecutors were alleging that Richard Scruci had also paid a half-million-dollar bribe to Don Siegelman. Strange bedfellows indeed. A charismatic Alabama businessman's thriving global healthcare company is revealed to be nothing more than a simple, multi-billion-dollar accounting fraud on this episode of Swindled.
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I would find myself dreaming big dreams. What am I gonna do when I grow up? What really am I gonna become in terms of my profession, my career? What will I do? I used to dream great dreams.
I had the opportunity to grow up inside of a large company, climb the corporate ladder, learn about all the different functions within a corporation, things that are important in terms of building a company and growing a company into a sizable company. And then of course I continued to dream. And I had a dream of building my own healthcare company. Richard Scruci dropped out of high school when he was 17 years old to provide for his pregnant, soon-to-be wife.
He took a job hauling cement. He later attended the pumps at a gas station. Richard even laid bricks before he decided to get his GED and return to school. After transferring from Wallace State Community College in his hometown of Selma, Alabama, Richard Scruci graduated from the University of Alabama at Birmingham in 1974 with a degree in respiratory therapy. He started teaching at the school and eventually became director of the program.
By the time Richard left academia, another child was on the way, followed by a divorce. In Houston, Texas, Richard Scruci found a new wife and a new career. He began working at the LifeMark Corporation. LifeMark was a healthcare company with three divisions: pharmacy, acquisitions, and physical rehabilitation. Within two years, Richard Scruci was overseeing all three as vice president of the company.
The young man's ability to lead was unmatched. He commanded rooms like a preacher and demanded respect like a grizzled old football coach. Though only in his mid-twenties, Richard Scruci had seen it all at LifeMark, a $100 million operation. Scruci rose quickly through the ranks but had a cup of coffee at every level. That experience developed a rare expertise which would soon need a new home.
In 1983, Lifemark was bought out by American Medical International. Richard Scruci received a significant payout thanks to his stock options. He already had a plan on what he would do with the windfall. In 1985, Richard Scruci and four business partners launched Amcor Incorporated in Little Rock, Arkansas.
Richard's new business would offer rehabilitation services that a patient would typically receive at a hospital, but in an outpatient setting. It was a revolutionary idea. The patients and therapists loved the proposal because it would be cheaper and more convenient. There would be no parking fees, housekeeping, laundry, food services, or security.
Plus, the patient would not have to spend the night. That alone would significantly reduce the overhead costs that hospitals typically pass on to consumers. And if it were cheaper for the patient, it would be cheaper for insurance companies, who were always happy to save a buck. Richard Scruci's timing was impeccable. Medicare had just approved reimbursement for various procedures, including physical, respiratory, and occupational therapies.
Amcare would be able to survive solely on that government teat. That was all investors needed to hear. Citicorp Venture Capital wrote Amcor Incorporated a check for $1 million. The company made a profit in its first month of business. Richard Scruci wanted more. He changed the company's name from Amcare to HealthSouth to be more marketable. Scruci also moved HealthSouth's headquarters closer to home, Birmingham, Alabama.
and then he raised an additional six million dollars in venture capital what started in a small office with a folding table a filing cabinet and a dream had become a very lucrative publicly traded company in a few short years everybody involved in the founding of health south became rich especially richard's cruci but he deserved it without his salesmanship none of it would have been possible
He was receiving standing ovations at investor presentations for Pete's sake. Wall Street loved him. Next thing you know, you know, we're signing contracts with General Motors and Chrysler and the Postal Service and Delta Airlines and corporations all over America. And we're helping them reduce their health care costs. HealthSouth expanded with lightning speed. By the early 90s, the company had almost 2,000 facilities across all 50 states, plus a few overseas.
Annual revenues were more than $180 million. Richard Scruci became the third highest paid CEO in the United States. He was worth at least $100 million by then. Still, he wanted more. HealthSouth began rapidly acquiring its competition to expand even faster. It became the largest provider of outpatient surgery and rehabilitative and diagnostic healthcare services in the whole United States.
The company employed more than 50,000 physicians at its peak. Richard Scruci became Birmingham, Alabama's favorite son, and his family was multiplying about as fast as his company and bank accounts. Richard and his second wife, Karen, had four children together, bringing Richard's total to six. He would have three more with his third wife, Leslie Ann Jones, who he married in 1997. Martha Stewart had attended the Scrucis' wedding in Jamaica,
Richard Scruci lacked brushing elbows with notable names. To promote Health South, he had hired every athlete you could think of. Some legends: "Bo Jackson" "Michael Jordan" "Jackie Joyner-Kirsch" "Herschel Walker" And some losers: "Dan Marino" With such famous friends and endless wealth, it's no surprise that Richard Scruci had become a legend in his own mind. According to former employees, in retrospect, it made the company culture at Health South absolutely toxic.
But at the time, everyone had bought into the man. Richard Scruci was a complete narcissist, they say, and exceptionally competitive. He would scream at people in meetings, shame them, and intimidate them by making really mean faces, blowing all that smoke to make up for what he lacked in stature, even with the lifts in his designer shoes.
But Richard Scruci had his motivational moments too. According to Health South lore, at one meeting Richard Scruci set up an easel and drew a bunch of stick figures surrounding what Richard confirmed to be a wagon. It looks like a child's drawing honestly. Regardless, the point Richard was trying to make is that the most productive teams have one thing in common. They're all out front, pulling the wagon.
They're not standing to the side of the wagon or getting a free ride inside of the wagon. No. Everybody is out front, pulling the wagon, pulling their own weight. Scrooge was known to use the phrase "pulling the wagon" to describe keeping HealthSouth successful. Richard Scrooge was so blown away by his own genius that he eventually had that wagon drawing commissioned into a life-sized metal sculpture in front of HealthSouth's massive new Birmingham headquarters.
He also demanded that a print of the wagon drawing hang in every company facility. The original picture was placed in the museum dedicated to Richard Scruci's career that Richard Scruci had built inside of Health South headquarters. The man wasn't afraid to celebrate himself. It seemed like everything in Birmingham was named after him.
There was the Richard M. Scrooge Parkway, the Richard M. Scrooge Campus, the Richard M. Scrooge Conference Center, the Richard M. Scrooge Field, the Richard M. Scrooge Library, to name a few.
They were all monuments to Richard Scruci's widespread philanthropy and political donations. He had plenty to share. It's estimated that Scruci made nearly a billion dollars during his career. He had 11 homes, nearly 40 automobiles, a yacht, and more than a dozen airplanes to show for it. But there was no better example of Richard Scruci's grotesque self-indulgence than his music career.
That's correct. It was Richard's lifelong dream to become a country music superstar, and money makes dreams come true. So, Richard Scruci formed and fronted a band that included other Health South executives called Dallas County Line. They had hits such as... And who could forget...
Richard Scruci was known to play entire albums of his own country music on repeat for anyone unfortunate enough to be stuck in the Hell's South airplane with him. You could feel it. Every ounce of his soul went into those songs. But Dallas County Line never caught on in Nashville or even Birmingham. Even after Scruci bought a nearby club so the band could regularly perform. A billionaire singing the song of the working man. Some things are just difficult to take seriously.
But Richard Scruci was serious about getting into the music business one way or another. In the late 90s, he developed a new approach that would be a guaranteed slam dunk. He just needed to go for it. You gotta go for it. Take your dreams to the extreme. Dare to believe you will achieve your highest goal. But you have to.
That's girl pop trio Third Phase. Remember them? Yeah, me neither. But apparently Richard Scruci channeled Lou Pearlman and spent at least a million dollars promoting this girl group.
He flew them around on Hell's South jets. He bought them breast implants. Traded stock to the VP of Sony Records for a recording contract. All to achieve... not much. At the height of their success, Third Phase opened for Britney Spears on a short tour. They released one album and then disappeared with the fad.
The most amusing part about Richard Scruci's musical ventures is that he displaced the company's accountants when he converted an entire floor of the Health South offices into a recording studio. It was a perfect encapsulation of what was happening inside the company at the time. By this time, Richard was far more interested in other projects than managing Health South's day-to-day, and the business was slipping because of it.
In 1996, for the first time ever, HealthSouth suffered a bad financial quarter. Their actual numbers were nowhere near Wall Street's expectations. As a result, the stock price would undoubtedly take a hit.
That's the last thing Richard Scruci wanted to happen. Report bad numbers, admit failure. Not on his watch. Besides, the unremarkable quarter was just a temporary hiccup, he assured his staff. Everything would be back to normal by the next reporting date. There was no reason to report it and scare Wall Street. Former Health South executives claimed that Richard Scruci instructed them to, quote, "fix the numbers."
The company had always practiced fairly aggressive accounting, but this was next level. This was straight up fraud. But Scrooge's team followed their leader anyway. Bill Owens, HealthSouth's controller and chief accountant, proposed they falsify accounting entries to inflate their quarterly earnings.
The accountants would post thousands and thousands of small entries to the contractual adjustment account, to which auditors would pay no mind. That account estimates the difference between the amount billed to the patient and the amount insurance will pay. It's constantly adjusted and difficult to verify. A prime candidate for financial fuckery.
Owens also suggested they disguise operating expenses as fixed assets and depreciate the cost over time instead of taking the hit all at once. Of course, the depreciation expense would eventually catch up and demolish future earnings, but that would probably be someone else's problem. In the meantime, it was a way to fill the hole, as HealthSouth executives would come to name the practice. Chief Financial Officer Aaron Beam signed off on it.
That quarter, HealthSouth reported phony profits for the first time. When they faced the same dilemma the following quarter, former HealthSouth executives claimed CEO Richard Scruci instructed them to fix the numbers again, and then again, and again. 120,000 fraudulent journal entries every quarter. Clearly things were not getting better as quickly as Richard had promised.
The false numbers were getting larger and larger every month. Even after Health South executives tried to gently persuade Richard to tell the truth, Richard Scruci refused to report a loss. The stock price was higher than ever. It wasn't going to happen.
Instead, Richard Scruci would demand the Hell's South family keep pulling that wagon until the wheels fell off. He's very entertaining. And that's part of his charm, and that's part of how people got pulled into him, is that he was damn good at preaching and talking and motivating. To be able to be that two-faced, to me, indicates a very devious, evil person.
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In competition, injuries happen. It's part of the game. And to get back your level of performance takes a lot of hard work, discipline, and the best health care. HealthSouth is the nation's leading provider of outpatient diagnostic, surgery, and rehabilitation services. So we can help you get back fast to the action, the competition, and the glory. We know your body. We understand your spirit. We get you back.
HealthSouth operated as a complete fraud ever since Richard Scruci instructed his team to fix the numbers. Every line on the balance sheet was a lie. Every annual report was a complete work of fiction. Moreover, the scale of the fraud was growing with each passing day. In 1996, the company reported earnings of $221 million, while the actual number was closer to $132 million.
The following year, HealthSouth reported earning $331 million when it actually lost $65 million. And in 1998, the company reported $47 million when the true earnings number was negative $556 million. The HealthSouth stock price reached its record high that same year.
To cover their tracks, HealthSouth implemented an email system that deleted old emails every 60 days and they'd send fake documentation to the auditor whenever a question was asked. It was a simple but labor-intensive fraud scheme, but so far it had worked.
Richard simply would not allow true numbers to come out. He would become extremely angry, extremely defensive. He was so busy with his narcissistic ways that the company just began to slip.
Richard Scruci was handling the pressure of operating a massive financial fraud scheme in the most Richard Scruci way possible. He became extremely paranoid and reclusive. He hired bodyguards. He bought a guard dog. He installed surveillance equipment in every office.
Scruci also started carrying a gun in his briefcase. That security blanket landed him in trouble when he accidentally brought it to the airport. Richard told security that he was on his way to Washington, D.C. to see the president, which was true but poorly timed. Also poorly timed was the rise of the internet during the height of Scruci's paranoia.
He assigned a HealthSouth employee to track down anyone bad-mouthing him or HealthSouth in chat rooms and on message boards so that he could sue them for libel. At one point, Scrooge even threatened to print his own newspaper after a less than flattering article about the CEO appeared in the Birmingham News.
The record high stock price made Richard Scruci feel a little better, as did laying off a bunch of employees the following week while at the same time purchasing a $6 million helicopter. It's the little things in life, you know. But inside, Richard Scruci knew HealthSouth was a house of cards waiting to tip. To make matters worse, Richard was already in legal trouble for buying computers for HealthSouth from a shell corporation owned by his father.
The Scrooshes had sold equipment to the government at egregiously inflated prices. Hell's South paid almost $8 million in 2002 to settle the case. Later that year, Richard Scrooge discovered that his personal accountant was stealing from him. William A. Massey Jr. was using Scrooge's money to bankroll an affair with a married woman who worked for Upsea Daisies, the upscale pajama company owned by Scrooge's third wife.
When Richard found out he was furious, he made repeated phone calls to the woman's husband to expose the infidelity, and he threatened his accountant with who knows what for embezzling his cash. The case never made it to court. William Massey imposed his own sentence, with a self-inflicted shotgun blast through the roof of his mouth. Lose one friend, buy another.
2002 was the year that Richard Scruci met Jason Hervey, the former child actor who played Fred Savage's older brother Wayne on The Wonder Years. Richard had always loved that show, so he offered Jason Hervey a job, Senior Vice President of Marketing and Communications at HealthSouth, a job that Jason Hervey was not qualified to do.
Hervey's ineptitude can be seen in the advice he reportedly gave to Richard Scruci about his investor presentations that weren't being received with the same enthusiasm as they had back when HealthSouth was a startup. The presentations needed more sex appeal, Hervey told Richard. And Richard listened. His next PowerPoint presentation featured photos of scantily clad women, backed by music from Third Phase. It was met with silence. You could hear one investor ask another, quote,
What the fuck was that? People were losing interest in HealthSouth, and HealthSouth was losing physicians and patients at an alarming rate. The company also had aging facilities with no real cash on hand to fix them. The empire was crumbling. HealthSouth executives had seen it all before. On the evening news, Enron, WorldCom, all the boxes of evidence being lugged out of skyscrapers, men in designer suits being led away in handcuffs.
That was their inevitable future, and the federal government was doing everything it could to assure it. In the wake of those financial scandals, Enron and WorldCom, Congress passed the Sarbanes-Oxley Act, which required CEOs and CFOs to certify the integrity of their company's financial results. The legislation also increased the penalties for individuals and companies found to be lying.
Just as things began to look doomed entirely for everyone involved in the HealthSouth fraud, there was a glimmer of hope. Medicare announced a change in its reimbursement policies that would cost the company about $25 million in annual earnings. I know that sounds bad for business and usually it would be, but HealthSouth was in a unique position. A sudden loss of revenue was actually an opportunity to conceal the fraud. Maybe there was a way out.
HealthSouth could now report more accurate numbers and blame the Medicare policy change for the poor results by vastly overstating its effect. Again, inside, the company estimated it would lose $25 million a year as a result of the change. But Richard Scruci told investors that HealthSouth would lose $175 million a year. Wall Street did not like that news. Shares of HealthSouth plunged 44% in one day in August 2002.
Thousands of investors had the rug pulled out from under them. Richard M. Scruci was not one of them. He had sold his shares a few months earlier for $54 million. That's originally what caught the Securities and Exchange Commission's attention. They opened an investigation into Scruci's stock sales. He was even removed as HealthSouth's CEO but returned when the smoke had cleared. Shareholders that were left holding the bag sued Richard Scruci for the timing of the stock dump.
But soon, he would find out that was the least of his worries. I was told to meet the FBI and several other federal officials at a suite in the Winfrey Hotel on a given night at a certain time. And I was told to park on the opposite side of the Galleria Mall and take a serpentine route through the Galleria in the event that I was being followed to try to shake anybody. That's Weston Smith.
He had taken over as HealthSouth's CFO in 2001 after Bill Owens was promoted to Chief Operating Officer. Owens had taken over for Aaron Beam, who left the company in 2000. Weston Smith contacted the FBI and informed them that he had a story to tell. On March 12, 2003, at room 412 of the Winfrey Hotel in Birmingham,
The HealthSouth CFO detailed the massive fraud that was occurring inside the company. He told them about the family of executives and how they were instructed to fill the hole and fix the numbers. The FBI had no idea. They had suspected insider trading, but this was unexpected. Over the next week, the case became much clearer as former and current HealthSouth insiders shared their stories.
Beam admits he inflated Hellsauce numbers, but he insists the fraud was ordered by Richard Scruci. Beam describes working for Scruci, saying he had misgivings from the first time he met him. Even so, Beam writes, "I went to work for him because he had a brilliant business mind. As it turned out, it was his only redeeming quality as a human being."
Beam continues to say Scruci was equally diabolical, callous, and cruel, that he was likely a sociopath. HealthSouth's corporate offices were raided on March 18, 2003. A team of 10 hauled away filing cabinets and hard drives, just like on the evening news, except this time the story was dropped from the news cycle at record speed.
Two days after the raid, the United States dropped the first of what would be almost 30,000 bombs on Iraq. Mission accomplished. HealthSouth's board of directors removed Richard Scruci from his CEO position as the extent of the fraud was revealed. From 1996 to March 2003, the company had allegedly overstated its earnings by $2.7 billion.
It got so out of control towards the end that HealthSouth was paying more in federal income taxes on its phony profits than it was actually making in true net income. Staggering. The SEC filed a lawsuit against HealthSouth while the criminal investigation continued. The stock price, which had once traded for $30 a share, shriveled to just 8 cents before it was halted.
Richard Scruci used these few months of uncertainty to deny everything. He said he was just as shocked as everyone else at the government's allegations. Scruci said he had no knowledge of the fraud. As CEO, he had to entrust the team, you see. That team perpetrated the fraud. They were the lowlifes, not him. But of course, that would be left for a jury to decide.
In November 2003, a federal grand jury finally indicted Richard Scruci on 85 counts related to the $2.7 billion health south fraud. He was the first CEO to be charged with violating the Sarbanes-Oxley corporate crime law. He would not be the last.
In Alabama today, federal prosecutors have accused the man who ran the country's largest provider of outpatient surgery and rehabilitation services with fraud on a colossal scale. Richard Scruci, who founded HealthSouth, is accused of inflating its earnings by $2.7 billion and illegally stealing more than a quarter of a million dollars for himself.
This is the prosecutors embarrassment of riches. They don't ordinarily have this much evidence and if they can't convict in this case I don't think there's any chance that they'll be able to go after WorldCom or Enron senior executives. By the time Richard Scruci's trial began in Birmingham in January 2005, 15 former HealthSouth executives had already pleaded guilty including former CFOs Bill Owens, Aaron Beam and Weston Smith.
All of the top executives pointed to Richard Scruci as the originator of the fraud, and they were scheduled to testify at his trial. At the very least, it seemed obvious that the founder and CEO of HellSouth was aware that something unscrupulous had been going on. Still, Richard Scruci denied any wrongdoing. He pleaded not guilty to 58 remaining counts of conspiracy, securities fraud, wire fraud, mail fraud, money laundering, and more.
Richard Scruci faced a potential life sentence if convicted, but his lawyers were confident he would walk. They don't have a smoking gun. If they had a smoking gun, they would not have waited all these months to bring charges. Scruci's defense started immediately through the media. While out on $10 million bail, Richard granted an interview to CBS's 60 Minutes where he previewed his stance by blaming and discrediting his underlings.
Bill Owens, Aaron Beam, Weston Smith, all liars. Convicted felons, even. They fudged the numbers for their own financial interest and took extraordinary measures to hide the scheme. Those gentlemen had stock options, too, you know. And now they were throwing their boss under the bus to lighten their own sentences. Richard Scruci was innocent, according to Richard Scruci. I think an objective review of the evidence...
will show that Richard Scruci was not involved in any of these alleged crimes and they will see that I was not part of that scheme. There's not one single memo, not one single document, not one single note, not one single email with Richard Scruci's fingerprints on it when Scruci's lawyers proclaimed in opening arguments. There was nothing linking Richard Scruci to the fraud scheme besides the testimony of his former employees
The defense would attack the character of every witness on the stand to prove that Richard Scruci, too, had been duped. After former CFO Aaron Beam's testimony directly implicated Richard Scruci in the fraud scheme, the defense raised questions about the witness's alleged drinking problem, which Beam flatly denied. And then they accused the witness of cheating on his wife with other women, which Mr. Beam confirmed to be true.
"What else does one need to know about a person's moral character?" the defense posed. "No further questions, your honor." Richard Scruci was taking the moral high ground. There was no reason the jury should believe these liars, these thieves, these adulterers, the testimony of these rats who are only interested in saving themselves. Scruci's lawyer had a poster board with an image of a rat eating a piece of cheese and everything. Again, the defense reminded the jury. There was no paper trail.
Of all the executives who had pleaded guilty, only one of the ten who had already been sentenced received jail time. Everyone else was given home detention in exchange for their thorough cooperation. Why wouldn't these men lie about Richard Scruci's involvement? They'd already lied about everything else. While the prosecution and defense battled it out in court, Richard Scruci was fighting for public sympathy using a variety of strategies.
Richard had a website built to promote his innocence. He purchased a television station and put his son-in-law in charge, who broadcast daily commentary on the trial. Richard also started attending church on a more than regular basis. He joined a black church in one of Birmingham's blue-collar neighborhoods where he began preaching, and he gave enormous donations to many other black churches in the city.
If that wasn't enough to convince everybody how holy he was, Richard Scruci also launched a daily religious talk show called Viewpoint, which he hosted with his wife Leslie.
Richard used the show to invite hundreds of black preachers to appear as guests and read Bible verses. With us today we have a wonderful new friend, Pastor Andrew Makasa. We're excited to have him with us. He's with the Victory Church in Tanzania. It's good to have you back. Now you look like a little rested today. You know, you've got your African attire on. Man, I really like that outfit. Yeah, you'll get one. When I come to Africa, I'll get one. That's comfortable, isn't it?
Richard Scruci's recent turn to religion and embrace of black people raised some eyebrows from people who had known the man for a long time. According to former employees of HealthSouth, there was an unwritten policy never to hire a black person, and they didn't for its first decade as a company. Allegedly, Scruci once told Bill Owens in passing, quote,
Richard also didn't go to church very often they say. If you'd like to get the latest and most accurate news regarding my situation please visit my website www.richardmscruci.com So why the change of heart all of a sudden? Was Richard Scruci repenting for past sins? Or could it have something to do with the fact that the jury at his trial consisted of five whites and seven African Americans? Is that why he showed up to court with an entourage of black preachers every day?
Was Richard Scruci trying to taint the jury? Why should we stop living simply because he's been accused of something? What would you recommend that we do? Do you want me to go sit in my room? No, I'm not going to do that. If we can work to lift people up and do positive things while I'm sitting here waiting,
Okay, that's good. Straight ahead on tonight's CBS Evening News, Justice Antonin Scalia decides not to remove himself from a case involving his friend, the Vice President. On May 19th, 2005, after an exhausting five-month trial, the jury began deciding Richard Scruci's fate on the 36 charges that remained.
The deliberations took over a month because one juror was dismissed and replaced for health reasons. Finally, on June 29th, 2005, a decision was made.
In Birmingham, Alabama, what many saw as a surprising verdict in the case against former HealthSouth CEO Richard Scruci. After 21 days of deliberation, jurors found Scruci not guilty on all 36 counts of conspiracy and securities fraud. Prosecutors brought the charges after discovering a $2.7 billion accounting fraud at HealthSouth.
Of course it was proven that it was fraud at the company, but there was not enough evidence to prove that Richard Scruci was involved. One of the jurors told the Wall Street Journal, while getting a haircut at a Birmingham barbershop,
Another juror, a 50-year-old black woman, explained her decision to the journal as well. It's the wording that they used. It could have meant several different things, she said, and added, they should have gotten fingerprints on those records. Outside of the courthouse, Richard Scruci was celebrating. Jesus taught us how to love each other. We've got to have compassion, folks, because you don't know who's next, who's going to be attacked next.
Richard Scruci spent more than $25 million on his defense. HealthSouth's insurance reimbursed him for most of it. What a victory. Not only was Richard avoiding prison time, but he would also not have to forfeit any wealth or property. For now, at least. He was still facing a massive civil trial and shareholder lawsuits. As for Scruci's former HealthSouth family members and wagon pullers, they weren't so lucky. Several of them served short stints in prison.
Bill Owens received the longest sentence of five years. When he got out, he was destitute and divorced. Even with those guilty pleas, the HealthSouth fraud was an embarrassing defeat for the United States Department of Justice, fresh on the heels of former Alabama Governor Don Siegelman's case that the judge all but threw out. We certainly hoped that they would believe those witnesses who have pled guilty to their crimes and implicated Mr. Scruci and put him as a co-conspirator.
How humiliating. But not all hope was lost. A former aide of Siegelman's named Nick Bailey had recently come forward with the information that implicated both Richard Scruci and Don Siegelman in a crime. How convenient. Allegedly, Richard Scruci had given $500,000 to Don Siegelman's 1999 education lottery campaign in exchange for a seat on Alabama's Certificate of Need Board, a board that regulates hospital construction.
Nick Bailey told federal authorities that he witnessed a private meeting in the governor's office between Siegelman and Scruci. He heard their discussion of the quid pro quo, and he saw a check change hands. Both Don Siegelman and Richard Scruci denied the accusation. Yes, they admitted, Scruci had donated money to the effort, but not in exchange for anything.
Scruci was a Republican who showered his money on both sides of every campaign. And more importantly, he already had a seat on the board in question for three preceding governorships. He didn't need to bribe Siegelman to get it. Yet on October 25, 2005, on the strength of Nick Bailey's testimony, both Don Siegelman and Richard Scruci were indicted on bribery and mail fraud charges. The trial began in May 2006.
Nick Bailey repeated on the stand that he saw the bribe happen. The defense argued that it was impossible. The dates on the check and the meeting didn't even line up. And since when was donating for a seat on a board considered bribery? Literally every single politician does it. In 2004, George W. Bush appointed 146 donors to positions in his administration. How was that different from what Siegelman and Scruci were accused of doing? It wasn't, the defense proclaimed.
Don Siegelman didn't even personally benefit from the transaction. This case was unprecedented and without merit, Siegelman's counsel argued. Richard Scruci's legal team was led by Fred Gray, who had once represented Martin Luther King Jr. and Rosa Parks. Scruci's use of race in his bribery trial was even more egregious than the last. He played up his Selma roots.
During closing arguments, Scruci's lawyer set up a poster of MLK's "I Have a Dream" speech as Fred Gray implored jurors to return a not guilty verdict to "make Dr. King's dream come true." Not this time. On June 29, 2006, a federal jury found both Don Siegelman and Richard Scruci guilty on seven of 33 felony counts.
They were sentenced in 2007 to seven years and six years in prison, respectively. Both men were immediately taken into custody and not allowed to report at a later date. Former Alabama Governor Don Siegelman will be in court tomorrow as well in Montgomery. The judge overseeing his appeal has ordered him to appear for his request for release.
while his appeal is ongoing. The 68-year-old is currently serving a 78-month sentence for bribery, conspiracy, and obstruction of justice charges at a federal facility in Oakdale, Louisiana. Siegelman's appeal hearing in Atlanta is scheduled for January 13th. Less than a year later, Don Siegelman was released from federal prison while he appealed his conviction.
The former governor alleged that his prosecution was politically motivated. Again, it all traced back to Karl Rove. There was a confluence of both the casino interest to get rid of me, to target me, and to stop me, as well as Karl Rove and his best friend and his best friend's wife, who was the U.S. attorney, as well as Karl Rove's client, who was the state attorney general.
Back in 1999, a Bush-appointed federal prosecutor named Lura Canary began investigating Don Siegelman, who would soon be campaigning to be re-elected governor of Alabama. Lura Canary was married to a man named Bill Canary. Bill Canary is Karl Rove's political consulting partner, and he was also the campaign manager of Siegelman's opponent, Bob Riley. That's right, a U.S. prosecutor was investigating her husband's political rival,
Siegelman presumes they were just looking for anything to smear him with. When the Canary connection became public eight months into the investigation, Laura Canary recused herself. Except she didn't, really. Emails later released by a former Department of Justice staffer revealed that Laura Canary was still very much involved in the Siegelman investigation until his arrest in 2005.
Another whistleblower came forward with information backing up these claims of prosecutorial misconduct. Dana Jill Simpson, an Alabama lawyer and Republican operative, told congressional investigators under oath that she was
that she was on a conference call where she heard Bill Canary telling campaign workers not to worry about Don Siegelman. He said his quote "girls" meaning US prosecutors Laura Canary and Alice Martin would take care of him. And they finally did thanks to Richard Scruci. Oh, and Nick Bailey. Why would Nick Bailey throw his old boss under the bus like that anyway? Because he was a crook too, of course.
Nick Bailey himself had accepted bribes while working for Don Siegelman, more than $100,000 worth, and he had gotten caught, so Bailey brokered a deal with prosecutors to testify against Don Siegelman. He later admitted that U.S. prosecutors coached him on what to say. Up to 70 interrogations of Bailey took place without required pre-trial disclosure to the defense. Records from those meetings were never divulged.
There were also rumors that Nick Bailey was repeating the government's words to prevent publicizing an alleged sexual relationship between Nick and Don. Stan Pate, a prominent Alabama businessman, told Harper's Magazine that he had a conversation with Nick Bailey and shared the details. "Nick also told me that one of the agents working the Siegelman-Scrushi prosecution asked him whether he had ever taken illegal drugs with Governor Siegelman or had a sexual relationship with them.
These comments had a dramatic effect on Nick and, in my observation, added significantly to the pressure he felt to go along with whatever the prosecutors wanted him to say. But it doesn't end there. The judge in Siegelman's case had a hand in this too.
Yeah, he was forced out of office because he was a violent thug. He beat up his wife. He committed eight violent crimes, was confounded, guilty of perjury, lying to police. All of that is true, but let's back up.
Judge Mark Edward Fuller held a grudge against Don Siegelman. When George W. Bush appointed Judge Fuller to the federal bench, he vacated his job as district attorney. And Governor Siegelman's office performed a customary audit on the office when the position was filled and found that Judge Fuller had misappropriated $300,000 of state retirement funds to fatten the salary of his favorite employee.
No charges were filed, but it was enough to embarrass Judge Fuller, and he never forgot. He had publicly stated that Siegelman's actions were politically motivated, yet he refused to recuse himself from the case. Both the judge and prosecution had glaring conflicts of interest.
And if you need more evidence, during Siegelman and Scruci's trial, the aviation company Judge Mark Fuller owned received a 10-year, $178 million contract with the United States Air Force. Thanks, Karl Rove. But apparently that wasn't enough money to keep a happy home. In August 2014, Judge Mark Fuller was arrested at the Ritz-Carlton in downtown Atlanta for beating his wife.
She needs an ambulance. I'm sending the police. They're in a domestic fight now at the Ritz-Carlton. I hate you. I hate you. I hate you. An investigation revealed that Mark Fuller had assaulted his wife on at least eight separate occasions. He served a short stint in jail for domestic abuse and was forced to resign from the bench. But that was after Judge Fuller had already upheld Don Siegelman's conviction.
It was an outrageous abuse of power. In 2015, more than 100 former attorneys general, both Democrat and Republican, wrote a letter petitioning the United States Supreme Court to review the case. But it never happened. Don Siegelman and Richard Scruci were forced to serve their time in prison. Scruci was also ordered to pay a $2.88 billion judgment in the civil suit brought against him by HealthSouth investors. It was enough to make him sing the blues.
Lord, I can't live without you. Such pain we suffer when we're lost. Man leading man is not the answer. 59-year-old Richard Scruci was released from federal custody on July 26, 2012 after serving nearly six years. 70-year-old Don Siegelman was released five years later on February 8, 2017.
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