Corporate Fraud Law Is Upheld

A federal judge in Birmingham, Ala. has rejected a challenge by Richard Scrushy, the fired chief executive of HealthSouth Corp., to the new corporate fraud law adopted after a series of major accounting scandals.

In the first court test of the Sarbanes-Oxley Act -- which requires top executives of public corporations to vouch for the financial reports of their companies -- U.S. District Judge Karon O. Bowdre disagreed with Scrushy’s argument that the act is unconstitutionally vague and should not be part of the indictment accusing him of a massive fraud at HealthSouth.

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

U.S. Atty. Alice Martin said prosecutors were pleased with the decision but declined to comment further.

Scrushy spokesman Charlie Russell said Monday that the defense would not appeal the decision, which was dated Nov. 23.

Scrushy last year became the first CEO charged under Sarbanes-Oxley. Scrushy, who is free on $10-million bond, is accused of heading a scheme to overstate HealthSouth earnings by some $2.7 billion.

Attorneys for Scrushy claimed the new law used phrases like “willfully certifies” and “fairly represents” that make it all but impossible for corporate officers to tell if they are abiding by the law.