A federal appellate court ruled Friday that the five-year, probationary sentence given to HealthSouth executive Malcolm E. McVay was too extreme a reduction from prosecutors' recommended sentence of 65 months of prison time.
The three-judge panel of the 11th U.S. Circuit Court of Appeals in Atlanta said that U.S. District Judge U.W. Clemon in Birmingham, Ala., gave the reduced sentence "virtually without explanation, and on a wholly improper basis." Federal judges are bound to consult the federal criminal sentencing guidelines, though they are not obliged to follow them since a U.S. Supreme Court ruling last year.
The 11th Circuit panel noted that McVay was the fourth defendant in the HealthSouth scandal for which the appellate court overturned a trial court's downward departure in sentencing.
The appellate panel remanded McVay's case to the Northern District of Alabama for resentencing consistent with the court's opinion. Although the federal sentencing guidelines are now advisory, appellate courts still can overturn a sentence if the decrease is too dramatic, just as it can when a sentence is enhanced too much.
The HealthSouth scandal involved allegations that company executives, including founder and chief executive Richard Scrushy, improperly inflated its earnings by $400 million. McVay served as chief financial officer, senior vice president and treasurer. The resulting scandal caused a loss in stock price that amounted to $1.4 billion.
McVay said he told his superiors, including Scrushy, about the irregular books, but signed the corporate financial statements anyway. The U.S. Securities and Exchange Commission discovered the fraud in March 2003, and McVay was indicted the following month. He pleaded guilty, and the government agreed to suggest a lower sentence because McVay was a key player in assisting the prosecution of other HealthSouth executives. Scrushy was acquitted last year, while other HealthSouth executives received probation and some were sent to prison, according to news accounts.
A presentencing report recommended just over seven years in prison, while prosecutors suggested a prison term of no less than five years and five months. But Judge Clemon sentenced McVay to a fine of $10,000 and five years of probation, with the first six months of probation served under house arrest.
The 11th Circuit said Clemon's only explanation for the dramatic reduction in sentence was a comment indicating that the reduction was due to McVay's "exemplary record" before becoming involving in the HealthSouth fraud, and the "circumstances" surrounding his daughter, apparently referring to the fact that McVay was a single father.
The government appealed in July 2004, arguing that Clemon had departed too far downward. The three-judge panel agreed, saying Clemon cannot consider the two factors he cited when issuing the sentence and must only consider how much McVay assisted prosecutors
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