What follows is the last of three chapters from my book, "The Governor of Goat Hill," that recounts most of the elements of what later became the prosecution of Richard Scrushy in the larger case against Siegelman. This chapter, as the previous one, tell about the reporting I did to uncover the substantial efforts made by Siegelman, Scrushy and others to conceal forever a pair of $250,000 donations to the Alabama Education Lottery Foundation. Siegelman and those in the national media who get their facts from him are forever characterizing the money as being normal campaign contributions. Among the many aspects of the "contributions" that separate them from the norm is that, well, they were not reported to the state (Alabama Secretary of State, Elections Division) and federal (Internal Revenue Service) agencies to whom such reporting was required by law.
This chapter, like the last one, is long. Midway through I've included one of the e-mails I sent to HealthSouth spokeswoman Kristi Gilmore -- and described in the chapter -- in which I ask if HealthSouth had made any contributions to the foundation. At the end of the chapter I've attached another e-mail -- one sent to Gilmore after the foundation was compelled to reveal its donors.
;
As with all chapters in the book, this one, called, "A Scrushy Surprise," starts with two quotes. You may wish to read the preceding chapter first. It is below this one.
I have checked with several people here and none of them are familiar with the
foundation. If I find out more, I’ll let you know.”
-- July 2002, e-mail from HealthSouth spokeswoman Kristi Gilmore after being
asked if the company contributed to the foundation.
“The best we can come up with is that it was used with helping education in the
state, and to pay off some debts of the lottery, and that it had to do with the governor’s
education initiatives. We donated money for the fund. Whatever it was used for is fine.”
-- Scrushy, in interview two weeks later, after the foundation was forced to
disclose more than $730,000 in donations, including a March 2000 contribution of
$250,000 from HealthSouth. Scrushy said he couldn’t recall who solicited the money
on the foundation’s behalf.
I returned from vacation in late June to find that neither the party nor the
foundation had located the records promised by both nearly two months before.
I don’t think it’s a stretch to suggest that, had I transferred to writing features for
the Living Department, neither would have ever disclosed what they had long
succeeded in hiding.
I immediately resumed my real avocation – writing, not stories, but letters
and e-mails. Pitt said he was waiting on Colonial Bank to provide the party with
its own bank records. Why this should have taken more than five minutes was
beyond me. The party was a client of long-standing, it was seeking the record of
a single transaction involving more than $700,000, and the bank’s chief lawyer,
Jack Miller, was Pitt’s predecessor as party chairman.
Does the following sound so unreasonable?
“Jack, Redding here. We can’t locate any records showing how that money
y’all spent for Don on the lottery vote got repaid. We have to know so we can
correct our report to the secretary of state, which as it stands, is wrong by, my
guess, more than $700,000.”
“Can’t find it? Why, we need to fix that, Redding. Let me call Fred over at
the bank. Heck, just stay on the line and we’ll do a quick conference call. Won’t
take a sec.”
Fiction, yes, but not fantasy.
Over at the foundation, the various unidentified minions were not burning
the midnight oil either.
On July 1, the Siegelman campaign made another stop in Mobile, and as he
had five weeks before, Bill Barrow used the occasion to ask Rip when we could
expect to see the foundation records. “We’re working on it,” said Rip. Asked to
provide a time frame, he gave a no-comment comment. “I can tell you that we’re
closer than the last time you asked,” he said.
The next day I drafted an e-mail letter for Paul to send. It asked the
administration to produce the foundation’s campaign records. Team Siegelman
was reminded that we knew the boss participated in the reincarnated foundation;
that Nick Bailey signed the tax return; and that Ted served as its lawyer.
“Given those facts, and others, it is difficult to separate the activities of the
foundation and the Governor’s Office, and we believe the Governor’s Office is the
entity that should, under state law, respond to Open Records Act requests related
to the foundation.”
That and another letter, sent to Vicki Balogh at the secretary of state’s office
and Bill Pryor, were faxed on July 9. I cc’d the Balogh/Pryor letter to Hosp, Pitt,
and Richard Dorman. Yes, guys, we’re going to the top. We’re tattling on you to
the attorney general.
As in March when trying to learn more about Sterne Agee’s filing, I asked
the powers that be to intervene on behalf of proper public disclosure. The letter
reviewed our findings up through our last story six weeks before; stated what Pitt
said in mid-May about the party working to put its records in order; and how,
going on two months later, this still hadn’t been accomplished. Also summarized
was the evidence supporting our position that both the party and the foundation
had violated the state’s campaign laws.
The letter concluded:
It remains unclear why both entities – the foundation and the Democratic Party –
don’t maintain accurate records of transactions that could involve in the neighborhood
of $1 million, or, lacking such records, why they can’t simply contact their banks and
ask that they quickly produce those records.
I believe that a significant amount of money has been raised, probably from
individuals, corporations and perhaps PACs, and that has never been disclosed. I hope
you agree that the entities identified above should be required to provide these disclosures,
and, given the time that has already expired, to be directed to do so promptly.
It worked. That afternoon, at ten ‘til five, the Democratic Party filed a one page
amendment to its spring 2000 campaign report with the secretary of state.
It revealed that on March 9, 2000, the party received a check for $730,789 from
the foundation, which it immediately used to repay a loan from Colonial Bank. It
had taken bank and party two months to locate this single, very large transaction.
Attached was a brief letter from Pitt stating that the party didn’t obtain the
information from the bank until the day before. Vicki Balogh faxed me the goods
in the morning and I went to work on the next day’s story.
Was it a surprise that the party had borrowed hundreds of thousands of
dollars to assist the foundation with the lottery campaign? No. We’d already
reported it. Nor was it stunning news that the foundation was the source of
the loan repayment. But with the filing, the foundation’s debt to the party and
proof of that debt’s repayment was now part of the public record – official and
incontrovertible. Most importantly, by its very nature – a filing with the secretary
of state – the disclosure was a declaration by the party that the $730,789 payment
by the lottery foundation was campaign related.
The filing rendered the ledger down at the secretary of state lopsided. Imagine
a football statistician, post-game, counting passes caught by a team’s receivers and
those completed by its quarterback, and finding that the totals didn’t match. He’d
know something was missing, say, an additional completion by the quarterback.
In football-speak, the records showed the party catching a $730,789 pass from the
foundation but didn’t show the foundation throwing any such pass.
That, minus the bit about passing and catching, was the case we made in
again asking the administration to disclose the foundation’s records. But this mule
wasn’t budging. Logic, the law, the right thing to do – none of that mattered, not
with Siegelman in the midst of one of his quadrennial life or death struggles to
remain in public office.
At trial, Grainger testified that he took copies of the party’s amended disclosure
to Hosp’s office. “We’ve got a problem because they (the Democratic Party) have
filed now,’” Grainger told the governor’s lawyer.
It didn’t do any good. These people just fl at out did not want to disclose the
foundation’s donors.
-----
In addition to letters we had another form of leverage at our disposal, that
being our raison d'être. That’s French for writing a story about it. On July 14 we
published the seventh foundation story since March, and the first in almost two
months. It began:
Within weeks after declaring it had no money, no debt and no more reason to exist,
the nonprofit foundation formed to fund the 1999 lottery campaign paid $730,789 to
satisfy bank loans made to the Alabama Democratic Party, the party revealed this week.
The revelation, made in a letter from party chairman Redding Pitt to the Alabama
Secretary of State’s office, confirms Mobile Register reports that previous financial
disclosures by the Democratic Party were incomplete.
The new disclosure also suggests that the Alabama Education Foundation -- formed
by Gov. Don Siegelman to pay for the ultimately failed lottery campaign -- may have
significantly under-reported its contributions and expenses to the Secretary of State.
Readers were told about the administration’s previous, unfulfilled pledges to
disclose the records. Also noted was our continued inability to locate a single
human willing to accept responsibility for the foundation’s actions. I took some
pleasure in using the following Pitt quote, as it scratched our back: “When
your paper pointed out the existence of these loans, and when we received the
information, we reported it. Our commitment was to determine the donor, to
amend our report, and for the present, that’s as far as I’m able to go with it.”
After the story I called Chuck Grainger, the secretary of state’s lawyer, and
offered to fax him various foundation-related records, including the Pool memos.
With the party’s disclosure, there was no longer any question that the foundation
was in violation of the campaign reporting laws. It was equally clear that the
phantom had no intention of coming clean just because some reporter in Mobile
was asking him to.
On July 17, Grainger wrote a letter to Assistant Attorney General Richard
Allen, with the subject heading, “Request of the Mobile Press Register concerning
Alabama Education Foundation.” He told Allen about the Democratic Party’s
report that the foundation gave it $730,749 in March 2000. “We have received no
disclosure filings from either the Alabama Education Lottery Foundation or the
Alabama Education Foundation since February 29, 2000 which would reconcile
with the disclosure of the Alabama Democratic Party,” Grainger informed Allen.
Allen responded by calling Ted Hosp, the lawyer for the governor and, or so
it seemed, the Foundation Phantom too.
I imagined a distraught Siegelman calling the contributors and breaking the
news that those donations that were never to see the light of day, well, he was
being told that the damn things would have to be disclosed.
I could almost hear him add, “It’s that damn reporter!”
-----
Harold, recognizing it was going to come out sooner than later, said the
foundation reports would show several sizable donations, but from reputable
corporations. Yes, they should’ve been disclosed, but otherwise, there was nothing
criminal in all of this. Sloppy and duplicitous, sure, but nothing prosecutable,
far as he could tell. He gave me two names – HealthSouth and Alfa, and said he
believed they were on the list.
Arch-conservative Alfa seemed the least likely because of its oil and water
relationship with Siegelman and its fierce opposition to the lottery. I called and
was told by a spokesperson that Alfa didn’t donate to the foundation, nor would
it have even considered doing so.
HealthSouth was more plausible. Despite its support of Fob James and right-leaning
candidates nationally, Scrushy and company had enjoyed fine treatment
from Siegelman, primarily through the latter’s support for HealthSouth’s
planned $300 million “digital hospital,” which Siegelman could have delayed to
death had he chosen.
When I called HealthSouth the company was six weeks away from its
duplicitous if still disastrous announcement that it was slashing revenue
projections by $175 million due to changes in Medicare reimbursement levels. As
subsequently developed, those revenues hadn’t existed in the first place, and for
reasons unrelated to Medicare.
I gave company spokeswoman Kristi Gilmore both of the foundation’s names,
with lottery and without, asked if HealthSouth had contributed to it, and suggested
she research the years 2000 and 2001. She called back and left a message that my
notes reflect was a no, but not definitively so. I e-mailed back and politely expressed
what I sensed to be a lack of certainty in her response. This time I told her that it was
possible that contributors donated the money indirectly, such as to First Commercial
Bank or Colonial.
“I heard what I can only call a rumor that HealthSouth was among the companies
that donated to the foundation, in some form or another. But if you assure me this isn’t so,
then I’ll trust that it didn’t occur,” I wrote.
Kristi responded, “I have checked with several people here and none of them
are familiar with the foundation. If I find out more, I’ll let you know.”
I didn’t consider that definitive, either. Had she checked with the janitor, or
Richard Scrushy? But I didn’t see how I could push it further without seeming rude,
and besides, I didn’t have it 100 percent that HealthSouth gave to the foundation.
So I e-mailed back, “Thanks ton, Kristi. That’s good enough for me.”
(Below is one of the e-mails I sent to Gilmore prior to the revelation that HealthSouth had contributed to the foundation, to the princely sum of, $250,000. The handwriting at the bottom is mine.)
(Below is one of the e-mails I sent to Gilmore prior to the revelation that HealthSouth had contributed to the foundation, to the princely sum of, $250,000. The handwriting at the bottom is mine.)
-----
The charades ended on July 24. That morning Richard Allen called Hosp and
told him that the attorney general’s office, acting on a request from the secretary
of state, had drafted a letter to the foundation asking it to comply with the law
by disclosing its contributions and expenditures. To what address should he mail
the letter, Allen asked. Hosp called back to say there was no need to send it, and
shortly thereafter, the governor’s office delivered a letter to Allen.
“Based on our discussion today, it is my understanding that the Secretary of
State’s Office has indicated to the Attorney General that the Alabama Education
Foundation likely needs to file additional or amended reports under the Alabama
Fair Campaign Practices Act,” Hosp wrote. “As I mentioned to you when we
spoke, based on conversations I have had over the last couple of weeks about this
matter, it is my understanding that prior to today, the Foundation had decided to
file additional reports.”
Hosp’s letter served as the basis for a story the next day reporting that the
foundation had pledged to identify its donations by Monday. The piece quoted
Mike Marshall explaining that we’d sought help from the secretary of state and
attorney general because we had been requesting the records for months and “our
reporter has been stonewalled.”
Two days later, on a Friday afternoon, I was wrapping up the story reporting
Waste Management’s $500,000 payment to Lanny after the Revenue Department
slashed the taxes at Emelle. Much of the information in that piece showed up
three years later in the Siegelman indictment, as did elements of another story in
that Saturday’s paper.
At quarter past five our fax machine churned out 45 pages of freshly minted
foundation records sent from the office of Siegelman lawyer Bobby Segall. There
were two 990s, for 1999 and 2000, and annual reports to the secretary of state for
1999, 2000 and 2001. I called home to deliver what had long since become the
routine if not pain-free message that I’d be awhile and possibly longer.
Here, finally, were the identities of the donors concealed by the phantom for
more than two years. Topping the list were two payments of $250,000, each of an
amount more than twice as large as any of the more than 300 previously disclosed
contributions. Donating that lofty sum were HealthSouth – a surprise given the
company’s recent denial – and Integrated Health Services Inc., a company I’d
never heard of.
Integrated Health gave on Nov. 5, 1999. I had assumed all the secret money
arrived after the foundation’s February 2000 reincarnation, but the Integrated
Health donation and two others on the same day showed that the phantom
commenced his sneaky ways earlier than thought, and revealed that the original
annual report for 1999 was a sham.
Google and Nexis told me that Integrated Health was a publicly-traded
Maryland-based company that had operated about 400 nursing homes throughout
the country, including one in Alabama. Most interesting was the company’s fate:
four days after the foundation contribution, the business press had reported the
company’s failure to make a $7.7 million interest payment due on a loan – a very
bad sign indeed for a publicly traded company.
Three months later, Integrated Health filed for bankruptcy. Why would
an upside down Maryland firm give $250,000 to a secret foundation run by
Alabama’s governor? Hmmm. I stuck that in my imaginary “Subjects Bearing
Further Scrutiny” file, right next to Alfa Mutual Insurance, which was shown
donating $100,000 in February 2000.
The other undisclosed contributors were: forest-products company Kimberly-
Clark Corp., $25,000; steelmaker IPSCO, which had recently built a plant in
Mobile, $25,000; Japanese electronics company Hitachi, $17,000; a Birmingham-based
company called SCT Software & Resource Management Corp., $15,000;
Oracle, which did business with the state and HealthSouth, $10,000; Tuscaloosa-based
Bama Concrete Products, $12,500; Donald Leeburn, a long-time Siegelman
benefactor and liquor distributor from Georgia, $10,000; and something called
Skillsutor.com, which gave $5,000.
Last but not least was that little seedling. As we’d reported four months and
nine stories earlier, Alabamians for Economic Development had given $13,500
in January 2001.
The final tally: 13 donations from 1999, 2000 and 2001, totaling $733,000.
Accompanying the reports was a letter from Segall to Pryor and Secretary of
State Jim Bennett that purported to explain why the foundation was only now
filing the reports.
“Although I cannot state with certainty the reason for the failure
to file these reports sooner, it appears that following defeat of the lottery in October
1999, those involved with the campaign gradually moved on to other pursuits, and
inadequate attention was given to filing requirements associated with winding up
the affairs of the foundation,” wrote Segall, the erstwhile, “Mr. Trustworthy.”
Here again was the old “everybody was busy and forgot” mantra presented
months earlier by Cromwell Johnson. It was even less credible now. Segall couldn’t
present these excuses to Bennett and Pryor “with certainty” because, as was obvious,
his client the governor had paid enough attention after the lottery loss to raise more
than $730,000; seek legal opinions designed to avoid disclosure; and take other
measures to ensure that everything about the reborn foundation remained secret.
Segall signed the disclosures. This, he told Pryor and Bennett, was because the
foundation ceased being a political committee soon after the referendum so it no
longer had a chairman or treasurer to sign them. This contradicted the documents
provided two months before by the governor’s office, and which showed that the
reincarnated foundation had both a chairman (Dorman) and a treasurer (a north
Alabama sheriff and Siegelman backer).
I supposed neither was willing to loan their John Hancocks to the cause, and
Segall, whose service for Siegelman in this and other matters seemed to have no bounds,
stood in for his client, aka, the Foundation Phantom.
For the record, Segall’s letter did not state the following: “I signed it because
we couldn’t find Nick.”
The governor’s name didn’t appear once in the new filings. Not anywhere.
Plausible deniability, no matter how implausible, remained the name of his game.
The next morning’s lead read: “Records produced late Friday by the Alabama
Education Foundation, formed by Gov. Don Siegelman to promote a state lottery,
reflect that previous reports by the foundation to the Alabama Secretary of State
and the Internal Revenue Service were incorrect.”
Incorrect? Fraudulent was more like it, but caution prohibited use of that word.
Because of the late hour, there was no way to even try to reach representatives of
All the donors, but I gave HealthSouth and Alfa a shot because of their prominence
and the size of their contributions. I had no luck with the first, but was able to
get Alfa spokesman Paul Till on the phone. I told him about the foundation’s
disclosure showing Alfa donating $100,000. He called higher-ups, then called me
back. “Alfa Mutual Insurance has never given money to the Alabama Education
Foundation for the lottery or any purpose,” Till said, in a quote used in the story.
“If such a report has been filed it is either an intentional or unintentional error
and we would like for it to be corrected.”
As little faith as I had in the foundation I could not imagine why Siegelman
would falsely report a $100,000 donation from Alfa. Any fool could anticipate an
angry denial from the company. On this occasion I placed my complete faith in
the governor, but for the story, Alfa had the last word.
Near the end, and only because I was so fair-minded, I wrote, “What the
disclosures don’t reflect is who sought contributions for the foundation, or who
managed its affairs after the defeat of the lottery.”
-----
I was back at the paper the next morning to work on a follow-up for Sunday.
In going back over the disclosures, comparing the old with the new, I saw to my
horror that I’d made a goof. The new 1999 filing contained all the donations
that year, not just the three previously unreported ones, from Integrated Health,
IPSCO and SCT Software. When racing through the reports the night before I’d
seen two $100,000 contributions from the Alabama Education Association that
for whatever reason registered in my brain as not being previously reported. I’d
included them with the three other new 1999 donations, thus suggesting they’d
been made in secret.
Now I saw that the donations from the state teachers union were properly
disclosed on the foundation’s original 1999 year-end report. When Paul came in I told
him about my mistake and we reported the error prominently in the next day’s story.
Because it was a weekend, reaching corporate donors was all but impossible.
But one matter – the Alfa dispute -- demanded immediate attention. I had two
big dogs – Alfa and the governor – in conflict on a substantial issue. Either Alfa
gave $100,000 to the foundation or it didn’t.
Company officials apparently remembered something in their sleep, because on
Saturday morning, Alfa about-faced. “The bottom line is, we sent people this morning
to our office in Montgomery, and after checking records, we verified that Alfa Mutual
donated $100,000 to the Alabama Education Foundation,” Till said, and I quoted.
Most importantly, for the first time I had someone saying what I’d always known
had to be the case: That Siegelman solicited the unreported contributions.
“The governor personally came out and met with our president (Jerry Newby)
to request the donation,” Till said.
Siegelman had told Newby that the funds were to be used in some undefined
manner to improve education in Alabama. “We oppose the lottery as much today
as we opposed it then, and we are outraged that our donation apparently was
diverted to pay off the debt of the lottery campaign,” the Alfa spokesman said.
As it had many times in the past, and so graciously, the Birmingham News
editorial page put things in a perspective that I was prohibited from doing in a
straight news story. On Aug. 1 the paper published an editorial under the heading,
“In denial.” The piece ridiculed Alfa’s claim that it had been “hoodwinked” by
Siegelman into giving the $100,000, and was now “outraged” to discover that the
donation was connected to the lottery vote.
“Alfa is hardly known for political naivete. The powerful insurance/farmers
organization is a masterful player in politics, one of the state’s largest sources of
campaign cash and one of its most formidable lobbies. Suffice to say, Alfa doesn’t
get surprised by much that occurs in the state capital. Yet the company claims this
lottery contribution was an exception.”
The piece credited the Register, stating, “It was because of this months-long
reporting effort that Alfa’s donation came to light.”
I hoped to find, especially through Alfa and HealthSouth, if donors to the
re-formed foundation had sought charitable deductions. The idea was suggested
to me by the Pool memos, which in addition to exposing Siegelman’s efforts to
secretly re-form the foundation, taught me a few things about a type of
nonprofit – the 501(c)4 – with which I was largely unfamiliar. Contributions to the
vastly more common 501(c)3s, such as the United Way and for that matter, most
foundations, are tax deductible. You give, and at tax time, lower your bill to the
government. With the federal corporate tax rate of about 35 percent, corporations
can decrease their taxes by about one dollar for every three given to a 501(c)3.
The foundation, as I knew from the Pool memos, was a 501(c)4 in its first
incarnation as well as its second. That’s a classification for non-profits that engage
in the political process, such as through issue advocacy. Well-known 501(c)4s
include the American Association of Retired Persons (AARP) and the National
Rifle Association (NRA). A 501(c)4 doesn’t have to pay taxes on money it receives,
but contributions to this type of non-profit – like campaign contributions – are
not tax deductible for donors.
What I wondered – and this goes back to my suspicion of all things Siegelman –
was whether he had, in making his spiel, told contributors they could take a charitable
deduction. If so, this angle of inquiry might further solidify Siegelman’s fund-raising
role, such as with the sort of tax record thank you letters that non-profits routinely
provide donors, and which I supposed might be signed by the governor.
Early the next week I asked Till if Alfa took a deduction on the $100,000; and
if so, had the foundation provided the company with such a letter. By this point,
Till was becoming feisty, taking the position I had no right to ask such questions.
Because of what had transpired I felt the company owed me an extra level of
truth. In an e-mail, I reminded Till that I’d asked him about this donation weeks
before the foundation disclosures and was told that the company made no such
donation; that on Friday night he’d again denied that the company contributed
to the foundation; and on Saturday, when Alfa finally acknowledged the gift, he’d
blasted Siegelman for deceiving Newby.
“Alfa made some fairly serious charges against the governor – it could well be
construed as accusing him of criminal fraud. I’ve simply asked Alfa to back this
up,” I wrote, in pressing my case for a copy of the receipt donors get when they
give $10, to say nothing of $100,000.
Alfa either was unable to dig up such a record, or did and just didn’t give it to me.
The company was under no obligation to give it to me, but it didn’t hurt to ask.
-----
I was making similar inquiries with HealthSouth. I assumed that Kristi Gilmore
might be embarrassed, considering that two weeks before she’d told me the company
hadn’t contributed to the foundation. I didn’t blame her. I assumed she’d asked
someone who should know, and was lied to. Testiness did ensue, though, after Kristi
told me that HealthSouth’s no-donation answer had not been definitive. I couldn’t
let this have-our-cake-and-eat-it-too response go unchallenged.
I told her in an e-mail that I had ceased pressing for a definitive answer
because I’d felt to do so would “be rude” and “reflect a lack of faith in your efforts
and your word.”
“Certainly I did everything that I could to ensure that you, and by extension,
HealthSouth, knew exactly what I was asking. If you have any suggestions as to
what I should have done differently, by all means, pass them on.”
And proceeded to the matter at hand:
I have the following questions about this substantial donation:
Who authorized this donation for HealthSouth?
Who contacted the company on behalf of the foundation, seeking this donation?
Can HealthSouth provide any documentation, such as correspondence to or from
the foundation, about this donation? If HealthSouth declines to provide such records,
could you/the company state that it has the records, but has chosen not to provide them,
or, other possibility, that it has never had any such records?
Did HealthSouth seek a tax-deduction as a result of this donation? If not, why
not, since such a large gift would appear to have generated a nice-sized deduction?
For accounting and tax purposes, how did HealthSouth classify this expenditure?
The second to last question was borderline disingenuous. I knew why the
company wasn’t eligible for a deduction, but was hoping to draw them into
telling me they’d taken a deduction if they had. And if so, under whose direction?
Two days later, Kristi e-mailed a statement confirming that HealthSouth made
the donation “with the understanding that it would be used to help with the
education system in the state.”
“There is no paperwork indicating who requested this funding for the
Foundation. HealthSouth claimed a tax deduction for this charitable donation,
believing that the Foundation was a 501(c)3. We at HealthSouth would be upset
to learn that these funds were used for anything other than education.”
The statement was mildly helpful, but not enough. The “no paperwork”
bit was just a dodge. In my response I told them about Alfa’s revelation that
Siegelman had personally visited the company’s chairman. My guess is that
something similar happened here: that the governor visited with or spoke with Mr.
Scrushy and requested the donation…. Is that how it happened? And if so, could
HealthSouth/Mr. Scrushy provide some details of the conversation/request.”
I also asked when the company first contacted Siegelman about its wish for
special legislation to let HealthSouth circumvent the CON board process (and
the years of lawsuits that can entail) and begin construction of its so-called digital
hospital. I wondered if the timing of that request coincided with the donation.
Lastly, I wanted to know if HealthSouth was contemplating legal action. After all,
Kristi Gilmore had said the company “would be upset” to learn that the funds were
used in some way other than to benefit education and it was, after all, $250,000.
The next day Gilmore called to say that Scrushy wanted to speak with me.
Well, that was an interesting development. Scrushy was a household name in
Alabama and on Wall Street, but I’d never met him.
By then regulators and the business press were nicking away at his company.
Questions were being raised about its accounting practices and a $25 million
company loan to Scrushy. I had no interest in those matters, can’t recall if I was
even aware of them, and of course had no way of knowing that HealthSouth’s
share price was three weeks from a nose dive.
I was put through to a speakerphone and told that an assistant, Brooks
Adams, was also participating in the call. I hoped Scrushy would confirm that
Siegelman personally solicited the HealthSouth contribution. Alfa’s Newby had
placed Siegelman in his office. If the same occurred with HealthSouth, why not
just say so? I figured Scrushy would. I was wrong.
Scrushy said that while he would have had to sign off on donation of such
size, neither he nor anyone else at HealthSouth could remember who contacted
the company on the foundation’s behalf. I wasn’t dumb enough to believe this,
but was without evidence to contradict him. I had no way of knowing, for
example, about the meetings between the pair in 1999 and 2000, during which
the donations were discussed and checks passed hands.
Scrushy said the company assumed the foundation was a 501(c)3 and had
taken a tax deduction. HealthSouth planned to contact the IRS, report the error
and pay the government any money it had saved as a result of the deduction.
Contrary to the company’s statement a day before, Scrushy said he wasn’t
troubled to learn that his company’s $250,000 was used, not to promote education
in the state, but to pay off the lottery’s debt.
“The best we can come up with is that it was used with helping education in the state,
and to pay off some debts of the lottery, and that it had to do with the governor’s education
initiatives. We donated money for the fund. Whatever it was used for is fine,” he said.
We parted with pleasantries. Later that afternoon, Adams called to report that
he’d just received a call from Scrushy, who had remembered something. Scrushy,
said Adams, seemed to recall that Elmer Harris, then still president of Alabama
Power, had called to solicit the $250,000 donation to the foundation. Did Scrushy
suppose I’d just accept this tale without checking it? If so, he was wrong. I called
Harris and left a detailed message on his answering machine. I told him what
Scrushy had said and asked if he could call me just to confirm this was the case.
Harris called back. I missed him, but he left the following message, which I
transcribed verbatim: “During that period of time, I did not give any monies to
the lottery foundation, nor did I solicit any monies for the lottery foundation.”
Scrushy’s recollection that Harris called him for the money and Harris’s
response were included in an Aug. 11 story that carried the headline, “Foundation
a Taxing Issue for Alfa, HealthSouth.”
The story examined the tax situation, which I thought significant though I
may have been alone there. It also addressed Alfa’s relationship with Siegelman
at the time of its donation. The arch-conservative insurance company/farmer’s
association had been one of if not the top donor to Fob James’ 1998 campaign,
and was, as the story reported, “known to be on the governor’s bad side.”
News reports at the time told of a major legislative defeat suffered by Alfa after
Siegelman personally became involved in the successful effort to pass a law requiring
mandatory car insurance. The new law was seen as a major blow to Alfa, which
along with its sister organization, the Alabama Farmers Federation, had long opposed
mandatory insurance.
In late 1999, Siegelman allies in the Legislature were promising to push legislation
that would eliminate a tax credit used by Alfa to cut the insurance premium taxes it pays
the state by millions of dollars each year. The bill was filed, but never went anywhere.
Till did not respond to questions about Alfa’s tenuous position with the governor
at the time it gave the $100,000, and whether concerns about losing the premium tax
exemption factored into the company’s decision to give when Siegelman came asking.
The final subhead, “Mystery surrounds other $250,000 gift,” described my
findings or lack thereof regarding the Integrated Health donation. “In some ways,
the company’s $250,000 gift is the most peculiar of the 13 donations,” I wrote,
without knowing the half of it.
Integrated Health’s failure to make a loan payment days after the donation
was reported, as was its subsequent bankruptcy. A spokesman for what was left
of the company confirmed that the donation had been made but said it was
authorized by people no longer with the company. I located a former executive,
Taylor Pickett, but he brushed me off . (Almost four years later, Pickett’s testimony
helped prosecutors convict Scrushy and Siegelman.)
My next best bet was the company’s bankruptcy filing. Debtors must
disclose expenditures made in the 12 months prior to seeking bankruptcy
protection, including charitable and political contributions. Because of the size
of the foundation donation and its date – three months before the bankruptcy
-- I was certain it would show up. I hoped to find that a creditor challenged the
contribution, and that the court record would solve this mystery.
As with most large corporate bankruptcies, Integrated Health had a web-site
for creditors and claimants to get the latest information on the case. On it was a six page
list of the company’s charitable and political donations in the year preceding
its bankruptcy. Most were less than $100, but the foundation gift – which would
have been by more than five times the largest on the list – wasn’t there. I contacted
two New York lawyers shown as representing the company’s creditors. Neither
recalled coming across a $250,000 check to the Alabama Education Foundation.
I called three state agencies – the Department of Public Health, the CON board,
and the Medicaid Department – to see if either had any serious issues with the one
Alabama nursing home operated by Integrated Health. “Representatives of all three
agencies said they were unaware of any significant or unusual issues pending with
them in 1999 and related to Integrated Health Services,” readers were told.
Lastly, Nexis revealed a past relationship between HealthSouth and Integrated
Health. Scrushy had been on the company’s board in the mid-1990s, and in 1997,
HealthSouth sold its nursing home business to the Maryland company for $1.2
billion. This was a coincidence worth asking about, and I did in an e-mail to
HealthSouth’s Gilmore that received no response. I elected not to report the link
because Integrated Health did business in Alabama, the HealthSouth ties were
severed years before, and I’d nothing concrete connecting the companies.
In early August someone – my recollection was that it was mailed anonymously
– sent me a memo from Hosp to Siegelman and dated Feb. 15, 2000. That was
two weeks after the foundation filed its 1999 annual report reporting a zero
balance and no debts.
The memo served as the basis of a story that refuted, once and for all,
Siegelman’s professions of ignorance about the continued operations of the
foundation. Here is the key portion of the story:
The memo, more than any other record previously produced, indicates that
Siegelman was in charge of the quietly formed, post-1999 version of the foundation
that had been created to fund the campaign to pass a state lottery.
In the memo, legal adviser Ted Hosp reported to Siegelman that, “as requested,”
changes had been made to the foundation’s bylaws, and all reference to a lottery had
been removed…. As a result of the changes, the foundation “may accept contributions
without limitation from individuals as well as corporations.”
“Neither the Foundation, nor an entity making the donation to the Foundation,
will be subject to federal or state disclosure requirements,” Hosp wrote.
A footnote at the bottom of the letter states that the Internal Revenue Service
requires non-profit organizations to file tax returns and make those returns public. On
those returns, (Hosp told Siegelman that) “the organization is not required to disclose
the names or addresses of any contributors.”
One final story, in late August, reported that someone with the attorney
general’s office – Pryor himself, I heard – had gone to Alfa to question officials
about the $100,000 contribution. It was the 13th story about the foundation in
more than five months. Had the administration been forthcoming from the start,
it might have been three stories over a week or two, instead of death by a thousand
cuts. I was later criticized by Siegelman and his supporters for writing “more than
100” stories” about the administration.
This was their fault on two fronts: for being unethical and frequently crooked;
then lying about it. Thus, lots of stories.
As Harold put it in one of his e-mails: “I have been urging a complete and
accurate disclosure, since it is the piecemeal nature of releases and the various
mistakes or omissions which fuel the appearance of impropriety and keep the
story alive.”
To which I replied, tooting my own horn: “Not to toot my own horn, but
if they don’t realize I don’t buy bullshit and slink away by now, I just don’t know
that they ever will realize it.”
I called all the donors, but to the extent I got anything, it was confirmation
that, yes, we gave. A guy at Bama Concrete Products hung up on me, which
piqued my interest. I requested highway department files related to the company
and looked for payment disputes at the time of its donation, but nothing jumped
out. Then again, a concrete company was likely to conduct state business as a
sub-contractor, not directly with the state. I could have asked to review files on
every project in which Bama Concrete supplied product, but they’d only donated
$12,500, so I gave up that goose chase.
I was busy on other fronts. If someone with subpoena power wanted to take
a run down the foundation trail, all the power. I’d given them a pretty good
head start.
Below, the e-mail to HealthSouth's spokeswoman after the Siegelman/the foundation was compelled to reveal its donors.
Below, the e-mail to HealthSouth's spokeswoman after the Siegelman/the foundation was compelled to reveal its donors.
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