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Sarbanes-Oxley Act passes first court test

By JAY REEVES
The Associated Press

Former HealthSouth CEO Richard Scrushy

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In the first court test of the Sarbanes-Oxley Act — which requires a public corporation's top executives to vouch for the company's financial reports — U.S. District Judge Karon Bowdre rebuffed Scrushy's argument that the law is unconstitutionally vague and should not be part of the indictment accusing him of massive fraud at HealthSouth.

Ruling in what she said was the first decision on the constitutionality of the 2002 law, Bowdre said jurors, and not the judge, should decide key questions of Scrushy's case.

Scrushy spokesman Charlie Russell said the defense wasn't surprised by the decision and would not appeal.

Bowdre's decision was dated Nov. 23, but Russell said the defense was unaware of the order until yesterday. Birmingham's federal court is switching to a new electronic filing system, making it difficult to access documents in some criminal cases.

Scrushy last year became the first CEO charged under Sarbanes-Oxley. Free on $10 million bond, he is accused of heading a scheme to overstate earnings by some $2.7 billion of the operator of rehabilitation hospitals and clinics.

His attorneys claimed the new law uses phrases like "willfully certifies" and "fairly represents" that make it all but impossible for corporate officers to tell if they are following the law. Prosecutors argued that similar language is used without problem in other laws.

In her 11-page opinion, Bowdre sided with the government and said it was up to a jury to decide if Scrushy met the letter of the law.

"If the jury finds that the reports did not fairly present, in all material aspects, the financial condition and results of operations of HealthSouth, the jury must then determine whether Mr. Scrushy willingly certified these reports knowing that the reports did not comport with the statute's accuracy requirements," she wrote.

Originally indicted last year on charges of fraud, conspiracy and violating the Sarbanes-Oxley Act, Scrushy was named in September in a new indictment that added perjury and obstruction-of-justice charges.

The judge had a hearing in June on Scrushy's request to overturn Sarbanes-Oxley but didn't rule before the new indictment was filed.
 
The defense renewed its attack on the law in a document filed last month, but Bowdre refused to dismiss the three counts of the 58-count indictment dealing with Sarbanes-Oxley.

Jury selection is to begin Jan. 5. Attorneys have said the trial could last for months.