The flashy persona of the multimillionaire with mansions, yachts and country music bands was long gone as Richard Scrushy sat in the packed...
BIRMINGHAM, Ala. — The flashy persona of the multimillionaire with mansions, yachts and country music bands was long gone as Richard Scrushy sat in the packed, tension-filled courtroom.
The founder of HealthSouth, who helped scrub Birmingham’s image with money for parks and roads as his medical-services and rehabilitation chain spread to all 50 states, awaited the decision yesterday of 12 mostly working-class jurors in his corporate-fraud trial.
Then as the 36 counts in the verdict were swiftly read — one “not guilty” after another — Scrushy began to cry, raising a handkerchief to his eyes. What he called two years of torture was over, a rare victory for an embattled executive in a string of corporate scandals and indictments that followed Enron’s collapse almost four years ago.
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“I’m going to go to a church and pray,” Scrushy said as he left court. “I’m going to be with my family. Thank God for this.”
The verdict was a stunning setback for federal prosecutors who had sought to add his name to a list of chief executives convicted of fraud.
Scrushy was the first of the high-profile CEOs to escape conviction in the wave of corporate scandals, even though the case against him was widely considered among the strongest.
With all five former HealthSouth chief financial officers pleading guilty and testifying Scrushy led a scheme to inflate earnings by $2.7 billion at the chain, some viewed the government’s case as stronger than in other fraud trials.
Yet when it finished 21 days of deliberations, the last five with an alternate replacing a sick juror, the panel acquitted Scrushy of all 36 counts of fraud, false corporate reporting and making false statements to regulators.
Eight jurors who met with reporters after the verdict said key witnesses were not credible and the prosecution failed to present substantial evidence linking the fraud to Scrushy. “The smoking gun wasn’t pointing toward Mr. Scrushy,” said one juror, identified only by court-assigned number.
Emerging from the building to cheers from his supporters, Scrushy said, “You’ve got to have compassion, folks, because you don’t know who’s next. You don’t know who’s going to be attacked next.”
Scrushy still faces civil charges by the Securities and Exchange Commission, which some experts say are more likely to be successful for the government.
“I’m disappointed in the verdict,” said U.S. Attorney Alice Martin, who plans to ask the 11th U.S. Circuit Court of Appeals in Atlanta to reinstate obstruction of justice and perjury charges that were thrown out earlier by U.S. District Judge Karon Bowdre.
Scrushy’s acquittal contrasts with recent convictions of several former prominent CEOs for their roles in various frauds, including Tyco International’s former chief L. Dennis Kozlowski, former WorldCom boss Bernard Ebbers and Adelphia Communications founder John Rigas.
A corporate-law specialist who had followed Scrushy’s trial was stunned at the verdict.
“There was a mass of evidence against him. I certainly expected the jury to convict. I thought the prosecution could get a fair hearing in Birmingham, but that appears not to be the case,” said Larry Soderquist, director of the Corporate and Securities Law Institute at Vanderbilt University.
Soderquist noted that the defense appeared to appeal throughout the trial to the sympathies of the jury, composed of seven blacks and five whites. Soderquist said Scrushy, a white businessman, has “a very high reputation in the African-American community” as he took on a more visible role at black churches in the months after his indictment.
The decision came in the fifth day of deliberations after Bowdre replaced a sick, white juror with a black alternate and told the panel to start work anew.
Prominent black attorney Donald Watkins, who hugged Scrushy as the verdict was read, had reminded the jury in closing arguments of the struggles of the civil-rights era in Alabama and how juries helped the movement succeed. Black ministers were also visible supporters of Scrushy in the courtroom throughout the trial.
Jurors told reporters after the verdict that race played no part in their views of the case. Instead, one juror said she expected the government to present “something more than hearsay.”
“There were a lot of hopes that weren’t fulfilled for me,” she said.
Herman Henderson, a black pastor from Birmingham who attended the trial almost daily and helped organize support for Scrushy among the clergy, downplayed the importance of the jury’s racial makeup. “I think that’s an insult to the integrity of the black pastors,” he said.
Some legal experts said the prosecutors may have made a mistake in going to trial in Scrushy’s hometown.
“They were going into Birmingham and taking the local boy made good and trying to bring him down,” said John Coffee, a law professor and white-collar crime expert at Columbia University. “Birmingham is not a city that sees the federal government as its hero or its champion.”
Some lawyers suggested white-collar cases are inevitably difficult to present to jurors, whether they live in Birmingham or New York.
“It’s different from a drug deal or a bank robbery,” said Donald Stern, a Boston attorney who was formerly that city’s top federal prosecutor. “It’s not obvious that a crime has been committed.”
In all, 15 former HealthSouth executives have pleaded guilty since 2003, when the scandal erupted publicly and drove the company to the brink of bankruptcy.
The scandal had a devastating effect on HealthSouth, which teetered on the edge of bankruptcy despite once having more than 50,000 employees at 1,900 locations in all 50 states. Its stock, now trading below $6, was around $30 a share before it was delisted from the New York Stock Exchange. Layoffs and closings have cut employment to about 41,000 people at 1,380 sites.
Scrushy was Alabama’s best-known business leader at HealthSouth’s height, an imperial CEO who dictated everything from T-shirt designs to seating in the executive dining room. He had a penchant for big boats, vintage cars and waterfront mansions.
But evidence showed HealthSouth was in financial trouble almost from the start. Witnesses testified the conspiracy began in 1996, when they said HealthSouth switched from “aggressive accounting” to outright fraud at Scrushy’s direction.
Transcripts from closed-door hearings showed prosecutors had evidence the scheme began years earlier, as early as 1988, but decided against trying to prove it.
The first executives to admit being part of the scheme pleaded guilty in March 2003. They told agents about inserting false numbers they called “dirt” or “pixie dust” to cover up earnings shortfalls, which they termed the “hole.” The group even coined a name for itself: “the family.”
The Scrushy defense blamed the fraud on that group, particularly the five finance chiefs who testified against him. Despite the full acquittal, Scrushy won’t be rejoining the company he founded.
“Our Board of Directors declared Mr. Scrushy’s contract null and void in March 2003,” Chairman Bob May said in a statement. “The new Board and new management team remain appalled by the multibillion-dollar fraud that took place under Mr. Scrushy’s management and the environment under which such fraud could occur. Under no circumstances will Mr. Scrushy be offered any position within the company by this management team or by this Board of Directors.”
Associated Press reporters Bob Johnson in Montgomery, Ala., and Marcy Gordon in Washington contributed to this report. Information about the Birmingham trial venue provided by the Chicago Tribune.