A Birmingham jury acquitted health care firm founder Richard M. Scrushy of three dozen fraud and money-laundering charges, dealing a powerful blow to government efforts to prosecute executives for financial misdeeds.
The seven-man, five-woman jury rendered a verdict after weeks of sometimes rocky deliberations focused on Scrushy's role in a $2.7 billion accounting fraud at HealthSouth Corp.
The acquittal marks the first major setback for federal prosecutors after a string of recent business fraud convictions and a failure in the first effort to hold a chief executive accountable under a corporate responsibility law passed after blowups at Enron Corp. and WorldCom Inc. Scrushy, 52, was the first chief executive to face charges of violating the 2002 Sarbanes-Oxley Act, which requires top officials to vouch for the accuracy of financial statements.
Outside the courthouse, Scrushy told reporters that he was bolstered by the verdict. "There are a lot of wrongs that need to be made right," he said. "Thank God for this."
Legal experts expressed surprise at the prosecution's loss, in part because the government had gathered 15 guilty pleas from other former HealthSouth executives. All five of the rehabilitation hospital chain's finance chiefs testified against Scrushy in the course of the trial, which began Jan. 5.
"This is an astonishing result," District-based defense lawyer James D. Wareham said. "It will change the way fraud cases are defended in certain regions of the country and will induce the Department of Justice to expand its overuse of the less defendant-friendly Southern District of New York as its forum of choice."
In a rare development for a white-collar fraud case, one insider had made secret audiotapes of Scrushy with a recording device sewn into his necktie. The March 2003 tapes captured Scrushy saying, "I am convinced there are 8,000 companies out there right now that's got [junk] on their balance sheets."
But defense lawyers argued that Scrushy never employed words such as "fraud" or "illegal" -- and that no documents or e-mails produced in the course of the trial directly implicated their client. They called the star witness against Scrushy, former finance chief William T. Owens, a "big rat."
U.S. Attorney Alice H. Martin, who tried the case alongside prosecutors from the Justice Department's Washington-based Fraud Section, said in an interview that she was disappointed with the verdict given the strong evidence.
Prosecutors are appealing the judge's dismissal of perjury and obstruction-of-justice charges. Martin said she would try Scrushy on those charges if they are reinstated by an appeals court. A separate civil case against Scrushy filed by the Securities and Exchange Commission continues, as do scores of lawsuits filed by HealthSouth shareholders.
The unusual trial, which lasted almost six months, featured a judge who described herself as a "neophyte" in criminal law, highly paid defense lawyers who appealed to religion and race to backstop their arguments, and government lawyers who appeared to irritate the judge with their persistent questions.
The jury, composed of seven blacks and five whites, mostly had blue-collar backgrounds and little familiarity with business practices. Deliberations spread over 21 days -- punctuated by repeated interruptions because of illness and vacations. The jurors reported they were deadlocked June 3, but U.S. District Judge Karon O. Bowdre urged them to continue. The judge replaced one older white male juror with a black male alternate June 22 because the older juror had developed health problems. After five more days of talks, the jury handed down its verdict.
