The acquittal of former HealthSouth Corp. chief executive Richard M. Scrushy in Birmingham yesterday suggests that jurors in the case embraced the defense portrayal of Scrushy as a deeply religious son of the South and rejected prosecution witnesses as self-serving and untrustworthy, legal experts said.
The verdict also means federal prosecutors will probably think twice before bringing cases in a popular executive's home town, the experts said.
The verdict, which stunned many lawyers and advocates of stronger corporate governance, followed a trial in which five former HealthSouth chief financial officers testified that Scrushy masterminded a scheme to inflate the company's earnings by $2.7 billion.
During the trial, Scrushy appeared on a morning television show in Birmingham called "Viewpoint" in which he and his wife read Bible verses. He began preaching in fundamentalist churches and invited pastors to the trial. Several jurors said in pretrial questionnaires that they attended church.
Robert A. Mintz, head of the white-collar criminal defense practice at New Jersey law firm McCarter & English LLP, said the public relations offensive may have helped Scrushy's cause.
"It's difficult to square this verdict with what appeared to be an overwhelming case going in," he said. "This was an extreme example of a case tried both in the courtroom and in the court of public opinion. That was always the risk when the Justice Department decided to bring this case in Alabama."
If Scrushy's acquittal came as a surprise to outside observers, it did not to many Birmingham residents. Andrea Griffin, 37, a sales representative at a Verizon Wireless store, said many people remember his active role in the community.
"He was a hometown boy," said Griffin, a Birmingham native. "It's hard for people to overlook the good he did. He has touched so many people's lives."
Indeed, the strongest criticism lodged against the government yesterday was not for its performance -- though some described the prosecution as too long and complex -- but for its choice of venue. Many legal observers said the government should have taken note of Scrushy's prominence and philanthropic work in Birmingham and brought the case in New York, site of many successful recent white-collar prosecutions, including cases against former WorldCom Inc. chief executive Bernard J. Ebbers and former Adelphia Communications Corp. executives John J. and Timothy J. Rigas.
"If you compare the evidence in the Ebbers trial to the evidence in the Scrushy trial, Ebbers had the better case," said Jacob S. Frenkel, a former Securities and Exchange Commission enforcement lawyer. "But Ebbers was tried in New York, and Scrushy was tried in Birmingham."
Frenkel added, "I think the government will view this result as an aberration, but where it may affect strategy is in the decision of whether to prosecute these cases outside of New York."
Vanderbilt University law professor Larry D. Soderquist, a close observer of the trial, said defense efforts to highlight Scrushy's connection to predominately black churches in Birmingham may have won points with the seven black members of the jury.
"I was astonished and aghast" at the verdict, Soderquist said. "I was dumbstruck. I saw no rational basis for acquittal, and considering [Scrushy's] popularity in Birmingham, especially among the churchgoing African American community, I fear that the race card won it for him."
In remarks outside the courthouse reported by the Web site of the Birmingham Business Journal, several jurors denied race was a factor in the deliberations.
Beyond questions of race, religion and location, legal observers said, the Scrushy prosecution suffered some of the same problems that plagued the first trial of former Tyco International Ltd. chief executive L. Dennis Kozlowski. Like the first Tyco case, some said, the Scrushy trial was too long and the government called too many witnesses.
"There is a sense that the government piled on, throwing too many questionable witnesses at the jury, each of whom had motive to lie and throw Scrushy under the bus to save their own skin," said Mintz of McCarter & English.
But unlike in Tyco, where the first prosecution ended in a mistrial, prosecutors in the Scrushy case did not get a second chance to streamline their arguments. After 16 sometimes tense days of deliberations, a mistrial seemed likely last week. But the judge demanded that jurors keep trying.
Corporate governance advocates, meanwhile, expressed dismay at the failure of the first major case prosecuted under a provision of the 2002 Sarbanes-Oxley law requiring chief executives to sign off on the accuracy of financial statements.
Other legal observers said they did not think the case would make prosecutors less inclined to bring cases based on Sarbanes-Oxley but would only encourage them to make cases tighter and perhaps to bring more of them in New York.
Georgetown University law professor Donald C. Langevoort said he was not surprised by the verdict. He said every complex white-collar case is a "roll of the dice" for prosecutors, who run the risk that jurors will fail to understand the case or have a hard time finding guilt beyond a reasonable doubt. He said he expects fewer white-collar prosecutions in coming years, but not because of the Scrushy verdict.
"We've had periods where prosecutors have been very aggressive on these kinds of cases, and that tends to be in the aftermath of scandals," he said. "Once that dissipates, prosecutors look much harder at starting months-long trials based on very dense data. . . . Would it surprise me if we were about to enter another period where these cases are much less frequent? It wouldn't surprise me a bit."
Staff writer Dana Hedgpeth contributed to this report from Birmingham.