Ex-HealthSouth CEO found not guilty

updated 7:40 a.m. ET June 29, 2005

BIRMINGHAM, Ala. - HealthSouth Corp. founder Richard Scrushy walked away a free man Tuesday after a jury cleared him of all charges in a stunning setback for federal prosecutors who sought to add his name to a list of CEOs convicted of fraud.

Scrushy was the first of the high-profile chief executives to escape conviction since a wave of corporate scandals and indictments followed Enron Corp.’s collapse almost four years ago, even though the case against him was widely considered among the strongest.

With all five former CFOs pleading guilty and testifying that Scrushy led a scheme to inflate earnings by $2.7 billion at the rehabilitation and medical services 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 acquited 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 and not by name.

As the “not guilty” verdicts were read on count after count, Scrushy started crying, then reached around and hugged his wife, Leslie, in the first row behind the defense table.

“I’m going to go to a church and pray,” Scrushy said as he left the courthouse. “I’m going to be with my family. Thank God for this.”

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 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 Corp. 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.

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