Wednesday, February 23, 2011

Scrushy, Siegelman and the Lottery Foundation

In the coming week, I will publish three chapters from, "The Governor of Goat Hill," that deal most directly with the "lottery foundation" or Scrushy part of the Siegelman prosecution.
This first chapter, called, "Scrushy Plays the Lottery," also tells Scrushy's story, from early days in Selma to head of HealthSouth. I think it's entertaining and hope you will as well.

I would ask readers to keep in mind Siegelman's frequent comments to the effect that if the HealthSouth charges are upheld (they're still on appeal), then the "traditional ways of financing a campaign
or a referendum could be turned into federal bribery charges on the whim of a
federal prosecutor," as he put it in one of his many post-trial mass e-mails seeking
donations to help him pay his legal bills.

I would ask you to pay notice of the roles of two companies, the investment bank UBS, and a Maryland healthcare company called Integrated Health Services.
Neither of these companies, to my knowledge, have been mentioned in any of the reporting by the New York Times and others who were to jump on Jill Simpson's bandwagon and all but accuse Karl Rove of ordering the Siegelman prosecution.
Here is the chapter, in its entirety.

Chapter 4
Scrushy plays the lottery

            “It was (Siegelman’s) estimate that Richard Scrushy had given some $350,000 to
Fob James’ campaign, and Eric asked what he could do to help Richard make up for
that. And Siegelman told him that $350,000 plus interest and they’d -- $500,000 –
and they’d just call it even.”
            -- Grand jury testimony of Nick Bailey, referring to May 1999 conversation
between Siegelman and Eric Hanson, HealthSouth’s Washington lobbyist.

            “The ‘black box’ lies in the survey. However, we will be -- as you should be -- far more
interested in finding out where to go from here than in sifting through the smoking rubble.
We believe this loss is a setback in this administration, but it need not be a fatal one.”
-- Nov. 2, 1999, memo to Siegelman from pollster Alan Secrest, accompanying his
survey analyzing the defeat of the lottery referendum.

            Soon after the inauguration a group of hand-picked Siegelman backers
incorporated the Alabama Education Lottery Foundation. Several months later
Siegelman – in a move that caused confusion forever after -- decided for public
relations reasons to drop lottery and call it the Alabama Education Foundation. (For
clarity purposes, it will in most cases be referred to here by its original name.)
            The foundation was designed to serve much like a candidate’s campaign
committee: Money from contributors would be deposited in the foundation’s
bank account, which in turn funded the campaign, paying for everything from
political ads to salaries for what was, for seven or eight months, a full-time staff.
            Hamrick took a leave of absence from the administration to run the campaign.
As with a candidate’s campaign, the foundation was required to report its
contributions and expenditures to the secretary of state. The chief difference was
that the foundation, because it was raising money for a referendum, could accept
donations of unlimited size from corporations. The usual $2,000 per corporation
limit did not apply.
            Full disclosure was a point of pride for the foundation, with Siegelman and
Hamrick frequently proclaiming that they were going the extra mile to ensure a
completely transparent operation. They wanted, they said, to prove that a state lottery
operated by the Siegelman administration would be pure as the driven snow.
            To secure passage of his lottery Siegelman brought in the same national
Democratic Party consultants he’d been using since his 1994 run for lieutenant
governor. Virginia-based Alan Secrest was to oversee the polling and consulting,
with Cunningham, Harris & Associates, out of West Virginia, directing the fundraising
            Darren Cline, a member of the Cunningham firm who had moved to
Montgomery for the governor’s race, stayed on for the lottery campaign. Among
his duties was the creation of donor lists which included past contributors to
Siegelman and companies and individuals doing business with the state. For each
Cline produced a focus sheet showing past donations and a target amount to
request, with that sum determined in consultation with Siegelman. As soon as
the governor arrived at foundation headquarters to raise money (a home near the
Mansion co-owned by Bailey), Cline would hand him a stack of focus sheets and
Siegelman would start cranking out calls.
            A post-referendum chart of Siegelman’s “call-time results” showed that he
made 1,909 calls in 132 hours, hauled in $4.5 million, and averaged $34,542
an hour. After the chart was introduced at trial, Siegelman lawyer Vince Kilborn
hailed his client as “the Muhammad Ali of fund raising.”
            Though Cline worked directly with Siegelman, he spent more time with
Bailey. Upon his election, Siegelman had appointed his driver/Man Friday to the
dual position of executive secretary and, laughably, state budget officer, with a
salary topping $90,000.
            When his boss became governor, Bailey developed a “God complex,” Cline
testified years later at Siegelman’s trial. Bailey’s position was “whatever the governor
said was right” and didn’t require explaining. “We’re God and we’re going to get
that done,” is how Cline explained it to jurors.
            He tried to talk to Bailey about his Siegelman mania, but to no avail. Cline
and his boss, Jim Cunningham, both came to feel that Bailey was “too far gone.”

            The rags to riches story of Richard Scrushy’s rise and run at HealthSouth offers
more than enough elements for the first sitcom starring the chairman of a Fortune
500 company. Probably it would be rejected as over the top, or maybe just some of
it, like the washed up former TV child star given the title of director of marketing as
cover for his real job, the boss’s full-time celebrity buddy. And if the child star had
to go, so too would a second character, the TV actor’s ex-porn-star wife.
            But the story of HealthSouth and its self-absorbed founder is not fiction, and
is spooky rather than funny.
            Richard Marin Scrushy, born and raised in Selma, dropped out of high school
after getting his girlfriend pregnant. They wed, had a second child, he worked as a
bricklayer, wore his hair long, in a ponytail, and lived in a trailer park. Though no
one was predicting fame and fortune, Scrushy struck friends and family as smart,
driven, and a little different. “You went over to Marin’s trailer, and he didn’t serve
Pabst, he served wine and cheese,” an old friend recalled years later.
            Scrushy tired of the dog’s life, got his GED and at his mother’s suggestion,
studied and trained to become a respiratory therapist. In 1974, he started teaching
respiratory therapy, divorced, and as a sign of the transformation to come, traded
in his middle name Marin for his first name, Richard. He remarried, and several
years later, joined and prospered at a Houston-based company called Lifemark,
eventually becoming a vice president.
            Aaron Beam met Scrushy in 1980, when he interviewed for a job as Lifemark’s
            “That night I told my wife I felt like I’d met either the most brilliant
businessman I would ever meet, or the biggest con artist I would ever meet,” said
Beam 26 years later, following release from a short prison sentence for his role in
HealthSouth’s $2.6 billion accounting fraud.
            When Lifemark was sold in 1983, Scrushy recruited four co-workers, Beam
included, to start a new company that was also a new kind of company. It would
be based in Birmingham, in Scrushy’s home state.
            “Back in 1984 you had to go to a hospital to receive physical therapy, such
as after a car accident,” said Beam. “Richard felt like you could do it cheaper
outside the hospital. With all his faults, Richard was very visionary, and he
was a very good businessman. His most striking quality is he’s driven. He was
never really not at work. If you left the office to go have dinner with him it was
still business. He would wear you down because that’s all he talked about was
            In the early years Scrushy built his company methodically, one new therapy
center at a time. In 1986 he took HealthSouth public, and perhaps equally
important, convinced orthopedist Dr. James Andrews to move his sports clinic
to Birmingham and to associate with HealthSouth. Andrews was in the early
stages of developing a reputation as the country’s leading sports injury surgeon,
his list of patients a who’s-who of America’s top athletes. So astonishing were
Andrews’ successes that in 1999, ESPN named him one of the 20th century’s
most influential sports figures. Two of his patients, major leaguers David Wells
and Kenny Rogers, went on to pitch perfect games. “He has helped put us on the
map,” Scrushy gushed to a reporter in 1999.
            It was, for HealthSouth’s CEO, a rare compliment for another’s contribution
to his company.
            “Richard managed by intimidation,” said Beam. “He would call you out in
front of the other employees, your peers, and call you a fool in front of everybody.
He’s the kind of guy you just don’t want to fight with. He’d make it so unpleasant.
            “You’ve heard how if you stand up to your boss, he’ll respect you more? Not
Richard. He didn’t want anybody standing up to him.”
            Beam cheerfully described Scrushy as being “charismatic in a Hitler kind
of way.”
            Amplifying the fear and paranoia at HealthSouth was Scrushy’s ever-present
security detail, led by his personal body guard, former state trooper Jim Goodreau.
            The sleek, handsome Goodreau oversaw the placement of security cameras
throughout HealthSouth’s corporate office. Some were disguised, with one placed
inside a smoke detector. To the discomfort of his underlings, Scrushy installed a
monitor in his office so he could keep watch on his employees.
            HealthSouth’s growth spurt began in 1994. The company borrowed and
spent billions of dollars gobbling up competitors and was by 1997 the largest
rehab firm in the country. That year, annual revenues skyrocketed to $4 billion
and HealthSouth entered the Fortune 500. Scrushy cashed in $93 million in
stock options, and combined with salary and bonuses, took home $106 million,
making him the third highest paid CEO in the country that year. “At one point
I know he was worth over $600 million,” said Beam, noting that some of those
riches came from Scrushy’s investments in other companies.
            Scrushy enjoyed spending it, his own and HealthSouth’s. His properties
included four mansions, including a garish 14,000-square-foot palace built in a
gated-community on Lake Martin; an $11 million home in Palm Beach; another in
Orange Beach; and his residence in Vestavia Hills, adorned with a helicopter pad.
Among his and HealthSouth’s toys were ten boats, including the 92-foot
yacht, the Chez Soiree and a racing boat called, Monopoly; some 30 cars, including
a Lamborghini Murcielago, a Rolls Royce Corniche and a $135,000 bulletproof
BMW; a Sikorsky helicopter valued at $7.5 million; and, in the art department,
three Miros, two Chagalls and a Picasso.
            In 1997, he flew style maven Martha Stewart and some 150 others to Jamaica
for his third wedding, to Leslie Jones, a striking brunette 16 years his junior.
Scrushy met her at a private airport where she was working and offered her a job.
            Both were married at the time, and claimed they didn’t start dating until after
their respective divorces. In time she became the mother of Scrushy’s seventh,
eighth and ninth children.
            By the late 1990s HealthSouth had more than 50,000 employees; operated
more than 2,000 rehabilitation outlets; had a presence in all 50 states; and
controlled almost 70 percent of the country’s rehabilitation market. Like many
first generation companies, HealthSouth was widely identified with its founder,
and he liked it that way. Only someone afflicted with far-gone narcissism could,
as Scrushy did, commission a life-sized statue of himself, which welcomed visitors
to the HealthSouth complex.
            The company’s roaring success permitted Scrushy to get away with a level of
public zaniness that would not have been tolerated at a more tradition-laden firm.
            In the early 1990s, the CEO recruited musicians from the Oak Ridge Boys
and Sawyer Brown to play in his band, “Dallas County Line,” named after his
native southwest Alabama county.
            The band, fueled with HealthSouth money, put out a CD and cut a video of
its lead single, “Honk if You Love to Honky Tonk,” from the album, “Rich Man’s
Dream.” The video shows guitarist and lead singer Scrushy, in black from hat to
boots, belting it out to an unlikely audience of, among others, Neil Diamond, Bo
Jackson, wrestler Lex Luger and NASCAR legend Bobby Allison. The song isn’t
as bad as might be imagined, but nor was it good enough to justify the continued
existence of, “Dallas County Line.”
            Scrushy apparently accepted his limitations as front man but chose to remain
in the biz, but as producer, not player. In the mid-1990s he became the moving
force behind, “Go for It! Roadshow,” a touring act aimed at educating and
entertaining teenagers.
            On a Go for It! tour the budding impresario spotted a trio of superficially sexy,
belly-button-showing 20-year-old girls who called themselves, “3rd Faze.” Research
for this book reflects that 3rd Faze aspired to be the next “Destiny’s Child.”
It was during this phase of personal growth through artistic creativity that
Scrushy met former child-actor Jason Hervey – big brother Wayne in the 1980s
sitcom, “The “Wonder Years.” Late in 2001 Scrushy lured Hervey to Birmingham
from Los Angeles with a $300,000-plus salary and the title of senior vice president
of media and communications.
            “People at HealthSouth were shocked. Hervey’s main job, really, was to be
the latest Scrushy sidekick,” chortled Fortune in an exhaustive and thoroughly
entertaining 2003 piece on the HealthSouth collapse. “Scrushy had taken a
29-year-old movie brat with no healthcare experience and put him in charge
of marketing and communications. There was even more shock when some
employees discovered, while Internet surfing, that Hervey’s wife was a former
porn star known as Angel Hart.”
            Beam left in 1997, no longer able to tolerate the falsification of earnings
statements, which were becoming a regular if secret mainstay of HealthSouth’s
financial operations. He never met Hervey but said the relationship fit a Scrushy
pattern. “He always liked having a kind of boy type person around … Richard
sort of has to buy friends because he’s just no fun. He always had an entourage of
people who wanted to get his money.”
            In two years time Scrushy spent more than $13 million of HealthSouth’s
money on 3rd Faze and the “Go for It!” roadshow. Of that, $4,600 was spent on
breast-enhancement surgery for one of the 3rd Faze girls.

            For mid-size cities like Birmingham, large public corporations are a treasure. They
generate considerable sums for the economy; often and certainly in HealthSouth’s
case, donate generously to charities; and help create a reputation as a good place
to do business. It’s probably for this reason that the first hard looks at Scrushy and
HealthSouth came from the national media, and specifically, Fortune.
            “We’re in Birmingham, at the home of a $4 billion company called
HealthSouth, and the scent of Elvis is in the air. HealthSouth is the creation of a
46-year-old Wall Street hero named Richard Scrushy, and not unlike Graceland,
it’s a place positively reeking of self-worship and control,” wrote Peter Elkind in a
June 1999 Fortune piece called “Vulgarians at the Gate.”
            Th e story chronicled the 1998 collapse of another Birmingham company called
MedPartners that Scrushy helped create. That firm disintegration cost investors
hundreds of millions of dollars and in time came to be seen as HealthSouth’s
warm-up act.
            “Flamboyant, natty, carefully tanned, Scrushy is almost a caricature of the
modern swashbuckling CEO,” Elkind wrote.
            The Fortune writer had the foresight to use the word “hustler” to describe
Scrushy more than three years before HealthSouth’s implosion. The story, as so
happened, was published about the time Scrushy flew to Montgomery to make
amends with Alabama’s new governor.

            On late June or early July 1999 – the date was never quite clear -- the
HealthSouth helicopter landed atop the Business Council of Alabama building a
few blocks from the capitol. Joining Scrushy for the short flight from Birmingham
were in-house lawyer Loree Skelton and Jabo Waggoner, the Birmingham area
state senator who served as the HealthSouth’s vice president for public relations
and its de facto lobbyist in Montgomery.
            In the coming years, Scrushy and HealthSouth were to seek and receive
substantial assistance from Siegelman, and the governor and First Lady socialized
with the Scrushys in ritzy settings, including, at HealthSouth’s expense, for a flight
and accommodations at the 2001 Grammy Awards in Los Angeles. But on that
day in 1999, a distance of half-a-million dollars separated tycoon and governor.
            Scrushy and HealthSouth had backed Fob James, including hosting a fundraiser
for Siegelman’s opponent in the 1998 governor’s race. In all, Scrushy was
reported to have contributed and raised some $350,000 for James. The Siegelman
campaign, and almost surely the candidate himself, had called Scrushy seeking a
contribution, but the HealthSouth boss declined to take or return his calls.
            Not a brilliant decision, snubbing Siegelman, especially with polls showing
the lieutenant governor miles ahead of James.
            Skelton, whose duties included governmental relations, testified years later at
trial that Scrushy’s support of James had repercussions. The company’s relationship
with the new governor was “probably nonexistent … because we had openly
supported his opponent,” said Skelton. “I told (Scrushy) that I was concerned we
would not have a voice in this administration.”
            Eric Hanson -- HealthSouth’s Washington lobbyist and a Siegelman pal from
years back -- helped broker the meeting that years later took center stage in the
Scrushy portion of the trial. Neither prosecution nor defense called Hanson as a
witness, though the court honored him with the title, “unindicted co-conspirator.”
            Hanson came to Montgomery in May 1999 to meet with Siegelman and
“see what he could do to make things right between the governor and Richard,”
testified Bailey, who sat in on the meeting. Siegelman told Hanson that Scrushy
had given and raised $350,000 for James. He told Hanson to tell Scrushy that if
he came up with $500,000 the governor would “just call it even.”
            Of immediate concern for HealthSouth was a position on the state Certificate
of Need and Review Board. The nine-person board reviewed then approved or
denied hospital expansion plans and major medical equipment purchases. Scrushy
sat on the board during each of the previous three administrations, but Siegelman,
as governors usually did, removed CON board members who’d served under the
previous governor to replace them with his own appointees.
            Healthcare is a huge industry in Birmingham and the competition for patients
is cut-throat. Hospitals and care providers in that city have a greater stake in the
activities of the CON board than anywhere else in the state. Skelton testified that
HealthSouth, as the largest healthcare company in the state, considered it vital to
have a seat on the board.
            Company records presented at trial showed that Skelton monitored the
board’s every action, especially those involving HealthSouth’s competitors but also
applications with no connection whatsoever to the company.
            Upon their arrival at the capitol, Scrushy, Waggoner and Skelton engaged in
small talk with Siegelman and Bailey. Then Siegelman motioned to Scrushy.
            “The governor said, ‘Would y’all excuse us for a few minutes,’ and they went
to an adjoining office,” testified Waggoner.
            Governor and CEO came out about 30 minutes later, and the visitors returned
to Birmingham.

            In late 2005, soon after charges were announced against Scrushy, Siegelman
and their co-defendants, Terry Butts, one of Scrushy’s lawyers, contacted
prosecutor Steve Feaga seeking a deal. According to a 2009 affidavit by Feaga,
Butts and lead Scrushy lawyer Art Leach told Feaga that after Siegelman won the
election, he threatened to use his office to harm HealthSouth if Scrushy didn’t
make a substantial contribution to the lottery foundation. According to Feaga,
Scrushy’s lawyers told him that Scrushy agreed to make a large donation, but
 “extracted from Siegelman an appointment to the CON board in exchange for
his contribution.”
            If so, Scrushy’s actions constituted a crime, since he was offering to give
money in exchange for a specific action from a public official.
            The government was open to a deal, but only if Scrushy agreed to testify
at trial and plead guilty to a felony. Scrushy and his lawyers balked, and the
negotiations ended.
            Leach has stated in affidavits that the government tried to trick him and his
client into revealing their proposed strategy at trial. He claimed that the government
tried to force Scrushy to give testimony consistent with the government’s, not
Scrushy’s, version of events.
            Both sides have, in court filings, called the other liars.

Beginning with the October 2005 indictment and continuing to this day,
Siegelman, Scrushy, their lawyers and supporters have ridiculed prosecutors for
spinning what they characterized as an ordinary campaign contribution into a crime.
            “If this verdict is allowed to stand, the traditional ways of financing a campaign
or a referendum could be turned into federal bribery charges on the whim of a
federal prosecutor,” wrote Siegelman in one of his post-trial mass e-mails seeking
donations to help him pay his legal bills.
            “This verdict infringes on everyone’s First Amendment right to financially
support a candidate or cause,” he declared.
            And on another occasion: “Every governor and every president and every
contributor might as well turn themselves in, because it’s going to be open season
on them.”
            Whether legal or illegal – and a jury carefully instructed on the law chose the
latter – only someone of Siegelman’s gumption could pretend that the two $250,000
checks handed him by Scrushy were routine political contributions. Alone, each was
larger than any of the other lottery donations. That itself raises two questions.
Why was Scrushy asked to come up with so much more than any of the other
major corporations in the state, and why did he?
            At $250,000 apiece, each was, even by the standards of national politics,
extraordinarily large. Neither was disclosed to the secretary of state or, in any event,
not until years later, and then only after the attorney general’s office, responding to
revelations in our stories, compelled Siegelman to report its sources of money. As will
be seen, considerable effort by Siegelman, his lawyers and others was made over a
three-year period to conceal the $500,000 and about $230,000 from other sources.
            Even at a fraction of its size, and assuming proper disclosure, the long strange
trip of the first $250,000 check separates it from any reasonable person’s notion
of the “traditional ways” of contributing to political campaigns.


            In the spring of 1999, investment banker Bill McGahan joined a group of
Salomon Smith-Barney investment bankers who made national business news by
walking out the doors of that firm and into those of another, Swiss-owned UBS
Warburg. Of greatest value to UBS was the group’s Fortune 500-level clientele,
most of whom followed the bankers to UBS. Among those was one of McGahan’s
top clients, HealthSouth.
            The New York-based McGahan had helped orchestrate multi-billion dollar
deals for HealthSouth that generated millions of dollars in fees. For McGahan,
keeping Scrushy happy -- one might even say, doing whatever Scrushy wanted
-- was way up on his list of priorities.
            McGahan’s chief contact at HealthSouth was Mike Martin, officially the
company’s chief financial officer and unofficially, Scrushy’s number two man.
Martin, with whom McGahan sometimes socialized, was a frequent conduit of
Scrushy’s directives. Such was the case on the day Martin called McGahan to
inform him that Scrushy wanted UBS to donate $250,000 to a charity called the
Alabama Education Lottery Foundation.
            Martin’s demand was made shortly after Scrushy’s meeting with Siegelman in
            UBS regularly made charitable donations, but $250,000 would have been
unprecedented, McGahan told jurors years later.
            “I sarcastically said, ‘Thanks a lot.’”
            But he didn’t reject Martin’s demand outright. “Even if the answer is ‘No,’
you want to give the appearance that you thought about it and tried,” he said,
adding that he was “hoping it would go away.”
            It didn’t.
            “Well, over the next two weeks, Mr. Martin called me every day, or perhaps
even more than that on some days, and, and would ask me how I was doing on
the donation, how UBS was doing on the donation, what I was doing to get the
donation done. And he increased his pressure and his rhetoric over, over that time
period,” McGahan told jurors.
            “He – he would use profanity and increase the berating and the pressure –
and yelling, telling us that we, or I, had to figure out a way to make a donation….
He said that, you, meaning me, was ‘going to be fucked’ if I don’t figure out a way
to make the donation.”
            Martin told jurors he used such language because he “wanted Mr. McGahan
to understand the seriousness of it and the severity of it because Mr. Scrushy was
definitely going to fire him….I didn’t want to fi re him, so I really started putting
pressure on Bill.”
            McGahan was in a jam. His bosses at UBS refused to donate anything McGahan
was in a jam. His bosses at UBS refused to donate anything close to $250,000, and his de facto boss in Birmingham wasn’t backing down. The pressure increased when Scrushy joined Martin on one of the calls.
         “Mr. Scrushy said that he wanted UBS to make a contribution to a cause in
the state of Alabama, that it was a good cause, that other companies in the state
were supporting it, that he was supporting it; and he wanted us to step up and
support it, too.”
            After two weeks, and fearing he was about to lose a major client, a solution
presented itself. Hanson, the HealthSouth lobbyist, also had a relationship with
UBS, and the lobbyist knew that yet another of his clients, Integrated Health
Services, owed UBS about $1 million in investment banking fees.
            Hanson, said McGahan, suggested that UBS forgive some of Integrated
Health’s $1 million debt if the Maryland-based company would make the donation.
McGahan proposed what may be the only debt-swap secret political charitable
donation scheme in history to his superiors, and was given the green light.
            McGahan called Taylor Pickett, Integrated Health’s chief financial officer.
Pickett’s response was not unlike McGahan’s to Martin’s first call. “In the first
conversation, when Bill indicated that he needed help, I said to him, ‘Well, what
are you – what are you talking about in terms of dollars?’ And he said, ‘$250,000.’
My response was … either it was a very long pause or basically, I said that there’s
no way I can do that,” Pickett testified at trial.
            Hanson intervened, and sold the deal to Integrated Health’s chairman. The
company agreed to donate $250,000 to that foundation down in Alabama. In return,
UBS agreed to forgive $263,000 of the $1 million owed it by Integrated Health.
            “Integrated had agreed, my understanding was, to make the contribution so
that Mr. Martin then didn’t, didn’t continue yelling at me after that,” McGahan
told jurors years later.
            Down in Birmingham, HealthSouth was pressing for the check. Martin
testified that there was “time sensitivity of getting that in Mr. Scrushy’s hand in
order for him to be able to deliver it to Gov. Siegelman at a meeting that he had
set up, that was on his calendar.”
            “(Scrushy) reminded me on more than one occasion that this was an important
meeting and the check had to be delivered to us at HealthSouth so he could hand
deliver it to Gov. Siegelman in their meeting,” Martin testified.
            Up in Maryland, Pickett issued a “hot voucher” demand for Integrated’s
accounting people to spit the check out fast. He was told to contact Leif Murphy,
another HealthSouth executive, and to arrange for its delivery to him.
            “Because it was a Friday and there was some urgency in getting the check, I
gave (Pickett) delivery instructions to my personal residence for Saturday delivery,”
Murphy testified. “If he was not able to get the check out on Friday afternoon, then
he was to go ahead and send the check to my work address on that Monday.”

            The check wasn’t cut until Monday, and arrived in Birmingham the next
day. Murphy immediately delivered it to Martin, who, as he testified years later,
“walked it over and handed it to Mr. Scrushy.”
            Scrushy made another trip to Montgomery and again, met privately with
Siegelman. After the HealthSouth chairman left, Siegelman showed Bailey the check.
            “He’s halfway there,” Siegelman told Bailey, referring to what the governor
told him was Scrushy’s promise to donate $500,000 to the lottery foundation.
“I responded by saying, ‘What in the world is he going to want for that?’ And
his response was, ‘The CON Board,’” Bailey testified.
            To which Bailey commented, “I wouldn’t think there would be a problem
with it.”
            “I wouldn’t think so,” answered Siegelman.

            On July 26 -- almost immediately after receiving the $250,000 -- Siegelman
wrote Scrushy notifying him of his appointment to the CON board. The position
of chair was already committed to Margie Sellers. She was head of the Alabama
Association of Nursing Homes, a long-time substantial donor to Siegelman
campaigns. Scrushy, according to trial testimony, asked to be named vice-chair,
and Siegelman appointed him so.
            Cline, the fundraising consultant, was stunned when Bailey and Siegelman
showed him the $250,000 donation from Integrated Health. It was, he told jurors,
“the largest check we ever received.”
            That amount “in one check sets off alarm bells,” he testified.
Siegelman and Bailey eventually told Cline that the $250,000 originated from
Scrushy, and that the HealthSouth boss had pledged another of equal size. They asked
Cline to hold on to the check. This happened occasionally when there were questions
about the donor that needed to be resolved prior to depositing the money.
            Cline put the check in a little lockbox in his apartment. It remained there for
about six weeks, which he characterized in his testimony as “an inordinate amount
of time.” His concern was heightened when he learned that Siegelman planned
to deposit the check into a bank account in Boston set up by Anthony Fant, the
treasurer for the Alabama Democratic Party and co-owner of the brokerage firm
used by Siegelman, Bailey and others for their personal investments as well as
Siegelman’s campaign.
            The check didn’t go to Boston. However, some $200,000 in other donations
made out to the party was routed to Boston, to the surprise, years later, of the
donors themselves.
            “I told (Siegelman) he was an idiot for doing it. I told him it (would be) bank
fraud,” Cline testified of the Boston plan.
             “I know, I know. I just need to get it done,” Siegelman answered.
Cline learned about the Boston account from the top two party officials –
Siegelman allies Giles Perkins and Jack Miller. The two lawyers, partners in the
firm Miller, Hamilton, Snider & Odom, were horrified to discover that donations
to the party had been sent to an account in Boston.
            Miller – a character witness at Siegelman’s 2007 sentencing -- told Cline
that what Siegelman and Fant were doing “could be fraud.” Perkins and Miller
demanded that the checks be returned to the party’s regular accounts, and they
were. The ultimate intent for the Boston funds remains unknown.
            Meanwhile, Cline said he and his boss, Cunningham, were fretting about the
Integrated Health check.
            “I kept asking folks what I needed to do with this check, because I was holding
onto it,” Cline told jurors. “And ultimately, Governor Siegelman and Nick Bailey
told me to give it back to them, that they would take care of it. And they said,
more specifically, that they weren’t going to deposit the check, that they were
going to return it.”
            Cline assumed the pair returned the $250,000 to Integrated Health. He
didn’t learn otherwise until 2004, when the FBI came knocking to ask him about
the check.


            Though he didn’t know it, I had an encounter of sorts with Siegelman during
the lottery campaign. I was interviewing a Mobile lawyer for a series on class
action lawsuits when his secretary stepped in to say he had a call. He told her to
take a message, but she trumped him. “It’s the governor.”
            He stiffened, and picked up the phone.
            His end of the conversation went something like this: “Yes sir. Yes sir. Yes sir.
I’m sorry about your father, sir. He was a fi ne man. Yes sir. Yes sir. Yes sir,” and
more of the same.
            I was thinking, Is he talking to the Governor or the Godfather?
            When the call ended, I asked what Siegelman wanted, knowing it was none
of my business. “He’s raising money for his lottery campaign,” the lawyer said,
without further comment.
            When the foundation filed its next campaign disclosure, I saw the attorney’s
name next to a $1,000 contribution.

            Two weeks before the lotto vote, veteran AP reporter Bill Poovey wrote the first
in a series of stories reporting that numerous Siegelman aides and appointees, Bailey
and Hamrick among them, had speeding tickets fixed. The governor moved into
damage-control mode, firing his appointed head of the state troopers, suspending
three staffers, including Bailey, and ordering an investigation into the matter.
            In the administration’s defense, ticket-fixing was an Alabama tradition as
prevalent in local courts as it was in the upper echelons of state government.
            Poovey’s stories did much to slow down if not stop the practice, but for Siegelman’s
purposes, they could not have come at a worse time.
            On Oct. 12, Alabama voters, especially rural, conservative Christians, jammed
the polls to vote on the governor’s “education lottery.”
            That evening, the governor on a hot streak watched in disbelief as the returns came in.
            The final tally: 46 percent for, 54 percent against.
Siegelman’s political love-child was dead. More than dead. It was cremated. He
woke up a different man the next day. “I have no plan B,” an uncharacteristically
dejected Siegelman told the press.
            “He has put everything on this,” Brad Moody, the political science professor
at Auburn University at Montgomery told a reporter. “He has made it the
centerpiece of his campaign and the centerpiece of his first year in office. He has
thrown all his political capital away.”
            Three weeks later, Secrest presented his analysis of the loss in a letter to
Siegelman. The Virginia pollster wrote that the churches “emerged as a much
more organized opponent” than during the 1998 gubernatorial campaign.
            “The opposition television (advertisements) cleverly tapped voters’ ancient
cynicism about their government. The free press was as relentless as it was jaded.
And our mistakes amplified all of the above.”
            Secrest’s use of the word fatal, from the quote atop this chapter, illustrated
how devastating was the loss and how in the minds of Siegelman and his staff it
might as well have been the governor on the ballot that day.
            Years later, at trial, I felt that the prosecutors failed to fully drive home an
important narrative point, which was the live-or-die aspect of the lottery for
Siegelman, and as a consequence, the manic urgency of his fund-raising. The
jury’s verdict proved me wrong on that count.


            On Jan. 31, of each year, candidates and PACs fi le annual reports of campaign
contributions and expenditures from the prior year with the secretary of state. On
that date in 2000 the foundation filed what appeared to all as its first and last such
report, covering 1999. The summary page reported some $5 million raised, the
same spent, and a final balance of zero.
            “My understanding is, the attorneys have to formally close it for the foundation
to end,” a foundation official told the Associated Press.
            A month later, the foundation did just that, filing a one-page, “Statement of
Dissolution,” with the secretary of state.
            Campaign over, lottery lost, stick it in the history books and move on. That
was the tale told the public by the proudly pro-disclosure foundation and its de
facto leader.
            But it wasn’t over. During the previous summer Siegelman had secretly
arranged for the Alabama Democratic Party’s statewide grass roots ground team
to get people to the polls for the referendum. The party spent about $750,000
on the operation, the agreement being that the foundation would repay it. The
foundation neglected to report this arrangement on its final report, as did the
Democratic Party, which was also required to disclose its contributions and
expenditures to the secretary of state.
            The party, its coffers sucked dry, had to take out a loan from Colonial Bank to
fund its calling and hauling voters to the polls effort on Siegelman’s behalf.
During our months-long run of foundation stories in 2002 and later, at
trial, Siegelman (outside court, that is, since he didn’t testify) maintained that he
couldn’t recall much if anything about the foundation’s debt to the party and the
two $250,000 checks delivered him by Scrushy.
            He’d been, he said, too busy campaigning for the lottery. It was Bailey, operating
largely solo, who carried out these shenanigans on his own, Siegelman and his
lawyers declared in keeping with their wide-ranging “blame it on Nick” defense.
            They said that, straight-faced, despite memos and records we had reported
on showing Siegelman cognizant of the debt and fully engaged in paying it off .
Among them was a Nov. 2, 1999, memo to the governor from Cunningham, the
West Virginia fund-raiser. It was titled, “Debt Retirement.”
            “Several of our traditional contributors are basically ‘tapped out,’” Cunningham
wrote. “If we can deposit the Scrushy check and perform a little clean-up call
time, we can retire the Foundation debt very quickly. This will give us the needed
time to rest our contributors and focus on creating a plan that will retire our party
debt quickly in 2000.”
            Three days later, Siegelman sent his Man Friday on an errand. Bailey drove
to First Commercial Bank in Birmingham and opened a checking account in the
name of the Alabama Education Foundation. On that day, some four months after
Siegelman received it, Bailey deposited the $250,000 from Integrated Health.
            Also deposited was a $25,000 check from IPSCO, a steelmaker that had
recently opened a plant in Mobile; and a $15,000 donation from a Birmingham
company called SCT Software & Resource Management. Neither was disclosed
in the report to the secretary of state filed two months later.
            “Everyone’s greatest concern is the large amount of debt incurred by the
Education Lottery Campaign,” Jim Cunningham wrote Siegelman in another
memo later that month.
            In February 2000 -- shortly after the foundation’s zero balance report to the
secretary of state -- Siegelman sent Scrushy a hand-written note gently reminding
the HealthSouth CEO about the second $250,000 promised during the meeting
the previous summer in Montgomery. “Thanks so much for your continued
support. Your personal commitment to help me by March 15 is very much
appreciated. Hope to see you soon. Don.”
            To pacify the state party, on March 9, 2000, Siegelman took out a $730,789
loan from First Commercial on behalf of the foundation. He personally guaranteed
the note, meaning if the foundation couldn’t repay it, he would be on the line.
Siegelman eased the bank’s concerns by having Merv Nabors, a wealthy long-time
backer, serve as co-guarantor.
            Candidates routinely borrow money for campaigns. However, they’re required
to disclose those loans on the secretary of state reports, the same as donations.
In one such case, the foundation complied. It took out a sizeable loan, listed
the guarantors (which included Siegelman supporters and members of his old
law firm) and later, reported the repayment of that loan – all in contrast to the
undisclosed loan that Scrushy’s checks went so far in repaying.
            From the moment he was charged until one supposes his final breath, Siegelman
has claimed that he enjoyed no personal benefit from the $500,000 given by Scrushy.
It doesn’t really matter, since the bribery statutes apply to campaign contributions
and don’t require personal financial benefit for the public official.
            In March 2009, when the 11th Circuit upheld his conviction, it addressed the
“personal benefit” argument if only to knock it down. The court remarked that
the $730,789 foundation loan was “personally and unconditionally guaranteed
by Siegelman,” adding in a footnote that there was another guarantor but “each
was individually liable.”
            With that, the court put the personal benefit argument to rest.
On the day the foundation and its two guarantors borrowed the money, the
bank transferred the same amount to the Democratic Party’s account at Colonial,
thus burying the party’s debt there. The party – in violation of the law – neglected to
report this super-sized payment on its subsequent reports to the secretary of state.

            In early 2000, Siegelman wrote Cunningham asking the consultant to
structure a plan for future fundraising and for “finishing off the money that I owe
for the lottery.”
            Cunningham responded with a document called, “Financial Plan (for)
Governor Don Siegelman Year 2000 - Year 2002.”
            The consultant reported that the foundation’s debt had been pared to $297,321.
HealthSouth, wrote Cunningham, still had the outstanding $250,000 commitment.
            “To reduce the stress involved in carrying this debt load, it makes sense to ask Scrushy
to assume the current note at First Commercial,” Cunningham advised.


            On May 23, 2000, Bailey drove the boss to HealthSouth’s corporate offices,
and as with the meeting almost a year before, remained in an outer room while
the governor and Scrushy discussed business. Siegelman returned to Montgomery
with a $250,000 check from HealthSouth, made payable to the lottery foundation
and signed by Scrushy.
            Eight months later, on Jan. 31, 2001, the foundation accepted its final
contribution – a relatively smallish $13,500 check from a PAC calling itself
Alabamians for Economic Development. More than a year later, that contribution
became the telltale clue to the unraveling of the second, secret life of Siegelman’s
lottery foundation, and Scrushy’s role in it.


            In the weeks following the lottery loss, rumors swirled that the governor was
suffering from depression. If true, it didn’t last long. In November Siegelman put
his game face back on and summoned legislators for a special session to address a
long-simmering and potentially disastrous problem.
            Thousands of out-of-state corporations had sued the state claiming that Alabama’s
franchise tax was unconstitutional because it taxed them at a higher rate than in-state
companies. The state faced the prospect of refunding more than a billion dollars in
back-taxes. With their backs against the wall, legislators and business leaders joined
together and settled on a replacement for the old tax. This allowed Siegelman, soon
after the lotto defeat, to put something in the plus column.
            That column would grow during his second year in office.
            “Less than 12 hours after lawmakers ended this year’s regular session in a rush
for the exits, a mighty swell of self-congratulation swept over the state Capitol
complex Tuesday morning,” wrote Register reporter Sean Reilly in spring 2000.

            Highlights included raising teacher pay to the national average; creating a
new, less political system of governance for the Alabama State Docks; and, most
important for Siegelman, agreeing to let voters decide on Amendment One, a
plan to borrow hundreds of millions of dollars for public works projects.
In November 2000, Alabamians overwhelmingly passed Amendment One.
            The vote reflected public trust in the administration, and meant Siegelman could
play Santa Claus in the run-up to the 2002 election. “This governor is going to be
going to a lot of ribbon cuttings from the Tennessee line to the Florida line,” said
Athens State political science professor Jess Brown.
            But the same election produced disappointment for Democrats. Of 11 state
appeals court races, Republicans won 10. After the election, State Treasurer Lucy
Baxley said that as a little girl growing up in southeast Alabama, she “did not
know a Republican.”
            “That is the truth. To me, being in politics was being in the Democratic Party.
Of course, that changed.”
            Baxley’s comments were included in a post-election piece I’d been assigned to
write. It reported grumbling among Democrats that Siegelman and the state party
organization cared only about the fortunes of the governor, not the party as a whole.
            The assignment – and a coincidental visit by Siegelman to the Register’s
editorial board – provided me with the first of just two interviews with Siegelman
during his entire tenure as governor. “Give me a break,” he said. “Whoever is
saying I could have had an impact -- unfortunately for me – they’re wrong. This is
not original, but there’s a one-word explanation – Bushwacked.’ There were deep,
deep coattails that probably could not be anticipated.”
            Grafton, the political science professor, told readers that if Siegelman played
his cards right, it could be Democrats riding coattails in 2002.
            “What Siegelman needs to do is take full publicity advantage of construction
projects started under his administration, and he must make sure the bidding
process for these projects is pristine.”
            Added the professor: “The slightest tinge of unfairness would hurt him severely.”


            The New Year arrived with me flailing about, producing nothing that couldn’t
have been done just as well by a summer intern. I’d closed out the year with a story on
a cleaning business shutting its doors after 54 years, and the annual piece reporting the
post-Christmas strain on the city’s garbage service from all that wrapping paper.
But if 2000 crawled out like a turtle, 2001 bounded in like a hare.
            Few who began their Jan. 3, 2001, with Mobile Register in hand will ever forget
this lead from that morning’s paper: “Starting Sunday, the cost of sending a first class
letter increases from 33 cents to 34 cents, meaning you’ll need to either use
the new stamps, or supplement the old ones with 1-cent stamps.”
             Looking back, I’m embarrassed to have put my name on what amounted to a postal service press
release. This was my pitiful way of reminding editors who might otherwise not have
noticed that I’d worked the day before. Reporters in slumps do such things.
            The next day found me near lifeless, battling boredom and scouring the
Internet for hot news to reflect off my eyeballs and give passers bye the impression
of a reporter hard at it. I was the manifestation of Newton’s object at rest, mired in
weeks-long inertia, when the phone rang. Wake up, loser. And see about injecting
some hail fellow well met into that hello.
            It had been almost three years since I’d heard the voice, not since a series of
stories he put me on during the James administration. Frank – and that is not his
real name – said I “wouldn’t believe” what the Siegelman administration was up
to at the Honda plant in Talladega County.
            He didn’t know it, and I sure didn’t, but Frank was about to change the course
of my life for the next several years, and Siegelman’s for far longer than that.

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