HealthSouth chief not guilty

Richard Scrushy, the founder of HealthSouth, was yesterday found not guilty of orchestrating a multibillion dollar fraud at the healthcare company.

The verdict was a blow to US government prosecutors because Mr Scrushy was the first chief executive charged under the Sarbanes-Oxley corporate disclosure laws.

He was acquitted on all 36 charges after a four-month trial and 21 days of jury deliberations in Birmingham, Alabama, where HealthSouth is based.

The verdict came five days after a sick juror was replaced by an alternate, apparently breaking the jury's deadlock. Sarbanes-Oxley, which requires chief executives to certify the accuracy of company financial statements, was the main government response to the wave of scandals that have swept corporate America in recent years.

Steven Smith, corporate compliance lawyer at Bryan Cave, said the Sarbanes-Oxley law would survive yesterday's setback. "[ It] has been implemented by every company and is being taken seriously. The outcome of this case was never going to change that."

Prosecutors claimed that Mr Scrushy ordered at least $2.7 billion (€2.2 billion) of profits and assets to be added to HealthSouth's accounts between 1996 and 2002 to help the company meet Wall Street earnings targets.

They said he collected more than $200 million from the sale of HealthSouth shares at artificially inflated prices, funding his extravagant lifestyle of mansions, yachts and classic cars. The government case relied largely on the testimony of five chief financial officers who served under Mr Scrushy. All pleaded guilty to fraud and told jurors that Mr Scrushy was involved.

Prosecutors played secretly recorded conversations between Mr Scrushy and senior HealthSouth financial officials in which he sounded aware of the scam.

But the defence said the tapes were inconclusive and pointed out that prosecutors had failed to present a single document that proved Mr Scrushy's knowledge of the fraud beyond doubt. The defence claimed the fraud was conducted in secret by the CFOs, who were now seeking to pin the blame on their former boss to secure lenient sentences for themselves. Mr Scrushy combined his training in respiratory therapy with an entrepreneurial spirit to create one of the country's biggest healthcare providers.