Judgment Against Scrushy: A Hint of Wall Street's Future?

This week, a U.S. judge levied a judgment of $2.88 BILLION in damages against HealthSouth Corp.'s (HLS) founder, Richard Scrushy.

The judgment is a class-action suit seeking to recover shareholder losses after fraudulent misrepresentations by Scrushy. Without any doubt, this will be a model of shareholders' lawsuits against Wall Street fraud-factories – for at least the next decade, and likely much longer

U.S. shareholders suffered more than $2 TRILLION in losses during 2008, with a large chunk of those losses incurred by shareholders of the companies in the U.S. financial crime syndicate. The only difficulty for litigation lawyers will be to decide which of Wall Street's fraudulent misrepresentations on which to focus.

Any torts-lawyer reasonably conversant with the law will have no difficulty in proving his case through the litany of lies being uttered on a quarterly basis.

While many of the worst offenders have already been swallowed up by those members of the U.S. financial crime syndicate who have not yet been exposed as insolvent, the legal liabilities of these former corporations are alive-and-well – and recoverable against the institutions who were foolish enough to buy-out other fraud-factories.

Perhaps more important is the personal liability which has been attached to Scrushy's fraud in the Health South litigation. As I have pointed out in previous commentaries about the tidal wave of litigation which will obliterate Wall Street, in cases of egregious fraud, courts can and will force the individuals responsible to surrender their entire personal fortunes in these judgments.

For Scrushy, a Bloomberg article reports that his employment contracts with Health South have been “invalidated...including his pension”. This strips Scrushy of as much as $200 million in current and future ill-gotten gains – along with confiscating the estimated $275 million of his own, personal fortune.

The Bloomberg article added that the plaintiffs will also have the option of seeking to garnish any future wages earned by Scrushy – assuming that anyone would be foolish enough to do business with this convicted felon.

The specific claim of damage involved shareholder losses from declines in the company's share price. For all the defunct, former titans of the U.S. financial sector, those losses have been crystallized – and all it takes is simply to file a claim against the new owner of these businesses, and then work their way through the litigation process, before the inevitable judgments are announced.

For those fraud-factories who survived the initial slaughter on Wall Street – and are currently sitting with grossly-inflated share prices (thanks to the efforts of the Plunge Protection Team), there will be plenty of time and opportunity to launch devastating law suits against them, when they crash back down to reality – later this year.

However, what will clearly be most satisfying for the litigants, as well as independent observers is when judges find these unrepentant criminals personally liable for their egregious acts of fraud.

Disclosure: I hold no position in any U.S. financial corporation, or Health South.

Comments

[Roger Knights:]

Pop goes the weasel!

Jun 20 04:55 AM

[Roger Knights:]

"the legal liabilities of these former corporations are alive-and-well – and recoverable against the institutions who were foolish enough to buy-out other fraud-factories."

I'm short Wells Fargo (WFC). Do you think it's vulnerable to lawsuits via its Wachovia subsidiary?

Jun 20 04:59 AM

[FloridaBoy2:]

I doubt the shareholders will recover much from Scrushy but this should serve as a reminder to the other arrogant self serving CEO's that believe they are untouchable.

Jun 20 06:24 AM

[john s. gordon:]

how come it took so long to whack scrushy over the head with a 2 x 4?
> jack

Jun 20 09:23 AM

[nukldrager:]

A good, plain speaking, American sounding article. Refreshing

Jun 20 09:54 AM

[Jeff Nielson:]

Definitely.


On Jun 20 04:59 AM Roger Knights wrote:

> "the legal liabilities of these former corporations are alive-and-well
> – and recoverable against the institutions who were foolish enough
> to buy-out other fraud-factories."
>
> I'm short Wells Fargo (seekingalpha.com/symbo...). Do you
> think it's vulnerable to lawsuits via its Wachovia subsidiary?

Jun 20 11:06 AM

[Leftfield:]

Just got back from my son's high school graduation. It's, what, $22,000 additional for each of those graduates and each of us added to our collective debt in just the last year. To serve Wall St. and DC.
Our bailout trillions are giving cover so the perpetrators have time to disburse and protect wealth amongst friends and families. We'll soon see how much the Madoffs of Wall St. and DC have left that can be attached.

Jun 20 12:37 PM

[justalittleguy:]

one can only hope for justice

Jun 20 12:52 PM

[INVESTGROUP:]

well here is your bail out,, $utrm.pk

Jun 20 02:29 PM

[User 434504:]

Amen!

Jun 20 05:48 PM

[Buy and Hol...:]

Keep in mind that Scrushy was able to sell himself as a sympathetic figure to the jury that returned a not guilty verdict during his criminal trial. He did all sorts of stuff to make himself look good. His defense attorneys also used all sorts of appeals to race and religion to make him look better.

www.washingtonpost.com...

This time, he didn't get a chance to do that. The judge who presided over the case was the one who decided it.

And that judge nailed Scrushy's lying ass to the wall. He deserves it.

Jun 20 10:14 PM

[Steve Soden:]

If one breaks the Law you have to pay. But Don't put these Clowns in jail.
Take everything they've got and make'em work as a Bus Boy for a year.
Let'em start over by borrowing from a Slim Friend, not a bank. That way some more of our dough returns and is put to work for the public good.

Jun 24 07:04 AM