By: Donald V. Watkins
Copyrighted and Published on February 1, 2023
An Editorial Opinion
In 2003, I became involved in the HealthSouth accounting fraud scandal that ensnared each one of the five men who served as chief financial officer of the company and 17 other top company executives.
The scandal caused HealthSouth’s stock to plummet, even though the company, itself, was not prosecuted by federal prosecutors.
My client was Richard Scrushy, the former CEO of HealthSouth. Scrushy was originally indicted on 85 felony counts of Sarbanes-Oxley and related accounting fraud charges. If convicted on all charges, he faced 650 years in prison. Scrushy was the first CEO in the nation charged with violating Sarbanes-Oxley.
In 2005, Scrushy walked out of the federal courthouse in Birmingham a free man. The defense team I led defeated prosecutors on all charges in Scrushy’s case.
The other defendants, who were top HealthSouth executives, were not so lucky. They all served time in prison, except for James P. Bennett. Prosecutors dropped all charges against Bennett shortly after we won a July 2005 acquittal in Scrushy's case.
The July 25, 2005 edition of Fortune Magazine profiled the Scrushy case in a feature article titled, “Donald Watkins: The Man Who Saved Richard Scrushy.” The February 2, 2005 edition of the Wall Street Journal labeled me the “real legal mastermind of the case.” The case was also featured on “60 Minutes." My role in the Scrushy case is featured in a May 11, 2020 Netflix documentary series titled, "Trial by Media," Episode #4, "King Richard."
No white-collar criminal defendant before or since Richard Scrushy has defeated 85 felony charges in an individual case.
The Racketeering Enterprise Operated by the Southern Company and Alabama Power Company Surpasses the Accounting Fraud Perpetrated By HealthSouth Executives.
The $2.7 billion accounting fraud scheme carried out by HealthSouth executives was very bad, but it pales in comparison to the long-running, multi-state, racketeering enterprise operated by the Southern Company and Alabama Power Company during Mark Crosswhite’s tenure as CEO of Alabama Power.
Crosswhite elevated the role of Joe Perkins and Matrix, LLC, to a level of “dirty tricks” that rivals anything a Hollywood screenwriter/producer could bring to life in his/her most ambitious film project. The Southern Company, Alabama Power Company, Matrix, Perkins and others acting in concert with them took money laundering to new heights. They also conquered every public official in Alabama that mattered, including law enforcement officials, at a rate of speed that would make Olympic sprinters envious.
If there were watchdogs in Alabama who were supposed to be safeguarding the interests of Alabama Power’s consumers, they must have been anesthetized. None of them – not the governor, legislature, supreme court, public service commission, state Attorney General, or U.S. Attorneys in Montgomery or Birmingham – has ever barked at or bitten Alabama Power in order to protect the interests of the company's consumers. All of them turned their heads and looked the other way while the Southern Company's and Alabama Power's racketeering enterprise was in full swing in the state.
The complete lack of effective regulatory oversight, consumer protection, and diligent law enforcement has allowed the Southern Company's and Alabama Power's racketeering to flourish in Alabama.
Today, the Southern Company perceives the Joe Biden administration as weak and inept. Privately, the company believes it can hoodwink U.S. Attorney General Merrick Garland and his Department of Justice, head-fake the Department's chief of the Criminal Division, and run roughshod over the Department's career RICO prosecutors. They view Mr. Garland as "soft" on Wall Street corporate crooks.
As such, the Southern Company is quietly seeking a non-prosecution agreement from the Department of Justice in Washington. The company believes it will get one by sacrificing a dozen or so senior management executives and promising to stop its racketeering conduct.
Likely Impact of Racketeering Conduct on Shareholder Value
My experience in dealing with publicly traded entities like HealthSouth, Wells Fargo Bank (which has a rap sheet longer than former New York Mafia boss John Gotti’s), Southern Company, and Alabama Power leads me to believe that the Southern Company’s stock will probably take a dive whenever the company discloses to its shareholders and the public that it is entangled with Matrix and Joe Perkins in a web of media and law enforcement investigations.
On January 25, 2023, Florida Power & Light and NextEra Energy filed a Form 8-K with the U.S. Security and Exchange Commission in which these publicly traded utility companies disclosed serious regulatory and law enforcement problems that blew up on them last year because of their shady business relationship with Matrix in Florida. As a result of this 8-K regulatory filing, Joe Perkins and Matrix have become too toxic and radioactive for the Southern Company and Alabama Power.
The Southern Company has been cleaning house at Alabama Power, Georgia Power, and inside the Southern Company since it announced Crosswhite’s “retirement” on November 21, 2022. Last week, at least 11 other top executives reportedly found out that they were “retiring” when they were escorted out of their respective headquarters at Alabama Power, Georgia Power, and the Southern Company.
Based upon my experience in these matters, I believe it’s just a matter of time before the New York-based national class action attorneys file their shareholder lawsuits against the Southern Company for using shareholder money to run a racketeering enterprise. I also believe that additional criminal racketeering complaints will be filed with the U.S. Justice Department’s Criminal Divisions by other victims of this long-running racketeering scheme. Furthermore, I believe that severe civil RICO lawsuits will follow suit.
Finally, I believe the cumulative effect of the Southern Company's and Alabama Power Company's self-inflicted legal quagmire will trigger a nosedive on Southern Company stock value and a big write-down law enforcement fines, penalties, for legal fees, restitution, and class action claims.
All of these events will likely constitute a "material" impairment to the Southern Company's balance sheet and inflict long-term reputational damage to the corporation -- in my humble opinion.