Siegelman's Big Score
Nick and Lanny, Under Siege
G.H. Construction chapters
Nick and Lanny, Under Siege II
Dana Jill/Hook Line & Sinker
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.

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 fund-raising operation.
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.”

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            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 fund-raiser 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.

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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 offices, 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 Montgomery.

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 f-cked’ 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 fire him, so I really started putting pressure on Bill.”

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.


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