Securities: Scrushy Ordered to Pay $2.8 Billion

The former chief executive officer of HealthSouth Corporation lost a civil verdict in an Alabama state court action and was ordered to pay defrauded investors $2.8 billion. The bench trial dealt with allegations that Scrushy, while CEO of HealthSouth, had defrauded the company's shareholders by engaging in accounting fraud.

The federal government had previously brought criminal charges against Scrushy for the same conduct. In June 2005 a federal jury in Birmingham, Alabama, acquitted him of all federal criminal charges relating to HealthSouth. That verdict surprised many observes as 16 other company executives either pleaded guilty or were convicted of federal charges in connection with the HealthSouth financial scandal.

The finding of liability in the civil action and the acquittal in the criminal case may seem somewhat incongruous, but the seemingly contradictory verdicts may be explained by the differing rules between civil and criminal trials. Of primary importance is the burden of proof. Criminal prosecutors must prove their cases "beyond a reasonable doubt" for a conviction while civil plaintiffs' attorneys need only reach the lower threshhold of a "preponderance of the evidence." Additionally, the Fifth Amendment to the Constitution protects a criminal defendant from being compelled to testify at trial. No such protection exists in the civil context. While a civil defendant maintains his Fifth Amendment right, that defendant may still be called to testify by the plaintiff.

While Scrushy was acquitted of the criminal securities fraud charges, he was convicted in federal court in Montgomery, Alabama, in June 2006 of bribing a former governor of Alabama. He is currently serving a seven year sentence based on that conviction. In March of this year the U.S. Court of Appeals for the 11th Circuit denied the appeal of Scrushy's conviction.