1. The SEC begins investigating insider trading charges against Scrushy and other HealthSouth executives. September 2002 – March 2003
· Weston Smith goes to the Feds on March 11, 2003.
· Bill Owens wears a wire to work on March 17 and 18th, 2003. The resultant recording will be at issue in both DOJ and SEC proceedings.
· The FBI raids HealthSouth headquarters on the evening of March 18, 2003.
2. First SEC Complaint is filed March 19, 2003
· 60 paragraphs, 7 counts
· Covers years 1999-2002. Fixes the fraud at about $550 million.
· HealthSouth and Richard Scrushy are named defendants.
· Government names on the document are Hicks, Loomis, Rue and Diskin.
3. Motion to freeze Scrushy’s assets and Court’s Order freezing assets, March 19, 2003
4. Amended Complaint is filed – April 3, 2003
· 62 paragraphs, 7 counts.
· The Complaint contains a few more details about the “property, plant & equipment” adjustments.
· Introduces insider trading charge.
5. SEC case stayed and Scrushy’s assets unfrozen, May 7, 2003
· In lifting the freeze, Judge Johnson cited the indefinite nature of the asset freeze, and the lack of proof presented by the government showing the likelihood that Mr. Scrushy would ultimately be held responsible.
· The Court also questioned the SEC’s use of the FBI as a tool in their investigation, and stayed the case because the process, and the competing DOJ case, was depriving Scrushy of his rights to defend himself.
· Some of the original complaint was cut and pasted from Weston Smith’s plea agreement.
6. HealthSouth settles with the SEC, June 6, 2005
· HealthSouth is to pay $100 million over two years.
· The company agrees to continue cooperating with the ongoing investigations.
7. Stay lifted in the SEC case following Scrushy being found not guilty in criminal case. June 28, 2005.
8. 2nd Amended Complaint filed – September 7, 2005
· 114 paragraphs.
· Covers years 1996-2003 (same years covered in the criminal trial).
· Fixes the fraud at $2.6 billion.
· New headings included some things like: Scrushy’s Obsession with meeting HealthSouth’s Stock Price and Meeting Wall Street’s Expectations; Scrushy Keeps His Team in Line; and The Transmittal 1753 ruse.
· There is no mention of insider trading.
· SEC attorneys on the document are Worland, Hicks and Loomis
9. SEC case is referred to mediation: September 15, 2005
10. Scrushy’s Motion to Dismiss 2nd Amended Complaint, filed September 30, 2005
· Says that after two years, there has been no credible evidence that Scrushy did anything wrong (citing the results of the criminal case among other things).
· The motion says that the two fraud counts are not pled with particularity.
· Refers to the unresolved problems Judge Johnson found in her memorandum from the SEC hearing, when the case was stayed and Scrushy’s assets were unfrozen.
· It also argues that Scrushy’s trading was neither illegal nor suspicious.
11. SEC’s Opposition to Motion to Dismiss 2nd Complaint, filed October 28, 2005
· Says Scrushy cites pages of facts that are not in the Complaint.
· It argues that Scrushy can not meet his “heavy burden.”
· The brief says the Complaint does indeed have sufficient facts.
12. Scrushy’s Reply to Opposition to Dismiss, filed November 14, 2005
· It says that Scrushy can not be held liable with HealthSouth.
· The brief argues against insider trading charges, brought by the SEC against a controlling person.
· They specifically say that the Court should consider the HealthSouth restatement, and other documents, as opposed to the SEC’s request that these documents not be considered because they are “not in the SEC pleading.”
· Scrushy argues that the statute of limitations has run out for anything that took place prior to March 19, 1998.
· The brief also says that Scrushy’s stock sales are not enough to establish scienter.
13. Judge’s Order Denying in part and Granting in part Scrushy’s Motion to Dismiss. Nov. 29, 2005
· Counts I and II, the fraud counts, are dismissed without prejudice, giving the government a chance to refile them.
· The Order also declared any claims for penalties for activities that happened before March 19, 1998, would be time-barred. The five year statue of limitations commences at the time of disco very, i.e. March 19, 2003.
· The Order further barred any claim of relief based on Transmittal 1753 because the Complaint offered no new evidence supporting any claims concerning the Transmittal, and she had already ruled (in her May 7, 2003 Order) that there was no evidence presented to support these claims.
· One line from the Court’s opinion: “The court is of the opinion that the second amended complaint fails to conform to this basic tenet of pleading.”
14. 3rd Amended Complaint filed December 30th, 2006
· 246 paragraphs. Lots of background on Scrushy and HealthSouth.
· Along with a section on scienter, there are many, many paragraphs of details about specific actions, like press releases or the signing of 10ks and 10Qs.
· The only mention of insider trading is in the “prayer for relief” section
· SEC attorneys on the document are Worland, Hicks and Loomis
15. Scrushy’s Motion to Dismiss 3rd Amended Complaint, filed January 17, 2006
· Cited ambiguities and a lack of particularity in the 3rdAmended Complaint.
· Brief says SEC failed to show proof of scienter.
16. SEC’s Opposition to Motion to Dismiss filed February 13, 2006
· Argues that the 3rd Amended Complaint is sufficiently detailed and specific.
· Further argues that Scrushy can not meet a legal threshold required to have the Complaint dismissed.
17. Scrushy’s Reply to Government’s Opposition to Dismiss, filed February 21, 2006
· Says the SEC reneged on its admission to the court that it must plead facts sufficient to create a strong inference of scienter.
· The brief also said the SEC’s Complaint was still lacking in sufficient details to show Scrushy’s involvement, and that it relies on conclusory allegations not supported by facts.
· They also attack the assertions that Scrushy should be held liable with HealthSouth “jointly and severally.”
18. Judge Johnson’s Order denies Scrushy’s motion to dismiss 3rd Amended Complaint, February 22, 2006
19. Scrushy files a Motion for Reconsideration, March 1, 2006.
· The SEC Complaint, in their “prayer for relief” section, references the insider trading allegations, but there is no mention of insider trading in the body of the Complaint. So the brief asks the judge to deny this request for relief from a charge that wasn’t made.
[Future actions: Depositions to be taken during the Summer and Fall of 2006, and the trial is scheduled to commence in April, 2007.]
