The sweeping acquittal in the 36-count indictment ended a five-month trial with a huge victory for an embattled corporate chief after a series of convictions in other high-profile business scandals.

Share story

BIRMINGHAM, Ala. — Jurors acquitted HealthSouth Corp. founder and fired Chief Executive Richard Scrushy today of all charges related to a $2.7 billion earnings overstatement at the chain of rehabilitation and medical-service centers.

The sweeping acquittal in the 36-count indictment ended a five-month trial with a huge victory for an embattled corporate chief after a series of convictions in other high-profile business scandals.

As the “not guilty” verdicts were read on count after count, Scrushy started crying. He pulled out a handkerchief and began wiping his eyes. After the final count, he reached around and hugged his wife, Leslie, in the first row behind the defense table.

Scrushy, charged with fraud, false corporate reporting and making false statements to regulators, was the first CEO charged under the Sarbanes-Oxley corporate reporting law.

But Scrushy, tried in the city where he has been a generous philanthropist, blamed the massive accounting scheme on subordinates including all five finance chiefs who served under him at HealthSouth.

“I’m disappointed in the verdict,” U.S. Attorney Alice Martin said after the verdict was read.

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 decision came in the fifth day of deliberations since U.S. District Judge Karon Bowdre replaced a sick juror with an alternate and told the panel to start work anew. It was the 21st day of deliberations overall.

The scandal had a devastating effect on HealthSouth, which teetered on the edge of bankruptcy for months despite once having more than 50,000 employees at 1,900 locations in all 50 states and a stock price around $30.

Today, HealthSouth stock trades around $6 after being delisted from the New York Stock Exchange. Layoffs and closings reduced employment to about 41,000 people at 1,380 sites.

Scrushy was Alabama’s best-known business leader at HealthSouth’s height, a high-flying, 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.

Always a promoter, Scrushy seemed to relish TV appearances where he talked up HealthSouth stock. Thanks to millions of dollars of philanthropy, Scrushy’s name was soon on roads, buildings and playing fields around the state and particularly in Birmingham, where HealthSouth is based.

But evidence showed Scrushy’s company 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 of 15 corporate officers and midlevel accounting executives to admit being part of the scheme pleaded guilty in March 2003, when the government filed suit against HealthSouth and Scrushy alleging a massive fraud. They told agents about inserting false numbers they called “dirt” or “pixie dust” to cover up earnings shortfalls, which they termed the “hole.”

Gathering in conference rooms and offices to figure out how much fraud was needed each quarter to make it appear HealthSouth was meeting forecasts, 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 worked under Scrushy and testified against him. One CFO, Bill Owens, came under withering defense attacks after agreeing to secretly record talks with Scrushy before both were fired.

Owens led the fraud, the defense claimed. He hid the scheme from Scrushy for years even after lower-level workers balked at continuing the fraud in mid-2002, when things began unraveling amid pressure from the new Sarbanes-Oxley act, which imposed stiff penalties for false financial statements.