Week 1 summary:
 

Picture a football game between two pretty good teams. The home team kicks off to the visitors, and they embark on a steady march down the field, and score a touchdown. Looks like the visitors would do pretty good. Might be a blowout. And then they kick off to the other team. A few plays later, it’s tied. On second thought, it might be a close contest after all.

Both sides have scored points in the courtroom, but neither side has delivered anything like an early knockout blow. Of course juries are the lynchpin of our system of justice, and the task of reading them has led to more frustrated legal experts then gamblers betting on the outcome of that football game. But after trying to clear the head of everything known pre-trial, and trying to place myself on the jury, I’d have to say they have no idea at the one week juncture. And that’s probably a good thing. In a sporting contest, there is often a moment of separation, where the better team begins to assert their dominance. That might occur, the moment when the stronger case becomes apparent, but it hasn’t happened yet.

These notes have often said the Scrushy case is interesting on several levels. It has the topical elements of corporate greed, but this is made even better as it is associated with other hot topics like medical care and insurance. Does the Scrushy case effect more than the business world? Is it just about CEO’s and Boards and Shareholders? I think the industry is at least important enough to mention, and although there are few or no voices working on this angle, I will try to establish some connections, in these documents, during the course of the trial. It may be just a business trial, as opposed to something like murder or smuggling, but it has more than its share of intrigue, including betrayal, infidelity, a corporate secret society (Parkman’s Family) eccentricity, lifestyles of the rich and famous, a rags-to-riches-to-courtroom success story, and old fashioned greed. And on the one hand, we have a not-all-good; not-all-bad strong personality at the center of the defense, while we have a government determined to stop corporate corruption. Without overstating Scrushy, he is the stuff of tragedy. He was a very ambitious man who’s ambition was his downfall. There is, of course, more to it than that, and I will also be building on this theme, in the coming months.

So now the trial has begun, where does it stand at one week:

The possibilities:

1. Scrushy didn’t do it. His corporate underlings turned on him and hatched a fraud. When they were caught, they pointed to Scrushy, and since he was the CEO, the government was only too willing to accept him as the culprit.
2. Scrushy did it. He masterminded a fraud, and coerced his employees to go along with it.
3. They all did it. Scrushy may have been involved in a fraud, but it was no worse than the participation of his colleagues.
4. It was all a misunderstanding, the figures and money were improperly handled by poor management (also noting Scrushy has no business degree) and although money was missing, there was an absence of criminal intent.
5. The government is tilting at windmills, and they saw a stock sell-off during a downturn, as more than it really was.

So that’s what the jury is looking at, after one week at Trial.

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The forensic accountant continued with his testimony today, and detailed the level of fraud that he and his team found, at HealthSouth. He displayed a flow chart that was supposed to depict the general method of accounting at the company. It went like this: 1) First they would get the numbers, 2) then they would do what they called a “First Run,” which was putting the numbers in the books; 3) and then they would re-work the numbers by adding fraudulent entries; 4) Then they would run the numbers again to produce their financial statements; 5) and finally, they would file the fraudulent document with the government.

He put up a chart that demonstrated the amount of fraudulent money that was added to the books in each of the quarters of the investigation. The numbers are in millions. The total is 2.7 billion.,

	Q1	Q2	Q3	Q4	Total
1996		7.37	10.79	70.2	86.36
1997	14.7	75.73	109.95	169.60	386.04
1998	100.23	127.17	167.17	208.47	603.04
1999	85.43	129.79	63.80	123.84	402.95
2000	23.40	51.27	113.84	158.44	348.95
2001	60.53	228.0	120.04	167.46	526.03
2002	76.33	109.59	49.31	(9.87)	225.43

The witness detailed a number of methods used to hide or inflate numbers, including a phantom stock deal. HealthSouth sold their stock in CareMark, but they added it back to the books as an asset, as if they still owned it. A year later, the books indicated that they sold the CareMark stock, but they didn’t have it to sell. Numbers and fraudulent supporting documents were provided to their E&Y auditors.

This was pretty damning testimony, in the sense of providing evidence that a fraud did occur at HealthSouth However next week, when his testimony wraps up, and cross-examination begins, the defense will likely establish that this information only shows that a fraud occurred, but there is no way of telling, from an examination of the numbers, exactly who it was the perpetrated the fraud.