That old-time religion

July 01, 2005

THE FEDERAL government's fraud and money-laundering case against Richard M. Scrushy, founder and former CEO of the HealthSouth Corp., appeared solid, if not airtight. His trial was preceded by guilty pleas from 15 other former executives of the nation's largest chain of rehabilitation hospitals and clinics in connection with $2.7 billion worth of accounting fraud. Five of the firm's former finance officers testified against Mr. Scrushy, saying he told them to cook HealthSouth's books to meet Wall Street's expectations. And yet, astonishingly, he was acquitted on all charges.

That outcome is significant because Mr. Scrushy's prosecution was the first major case brought under the Sarbanes-Oxley law's requirement that CEOs sign off on the accuracy of their companies' accountings -- and thus should no longer be able to claim ignorance of fraud. But in this case, the new corporate accounting law was no match for that old-time religion -- Mr. Scrushy's lavish and successful efforts to cultivate support from local churches in his hometown of Birmingham, Ala., where prosecutors made the highly questionable decision to try him.

In Birmingham, the generous Mr. Scrushy already had buildings and a highway named after him. Leading up to and during his trial, he flaunted his religious beliefs on a daily cable TV show and donated $1 million to a local church. Pastors and congregants daily sat in the courtroom in support. Along with a homespun defense painting his accusers as liars, this religion card apparently played a large role in the jury concluding that the case had too many holes.

White-collar crime cases are often complex, sometimes too complex for jurors to absorb or find believable. But this case was made much more difficult because prosecutors made the mistake of giving Mr. Scrushy the home-field advantage by not switching venue from Birmingham or even from the South as a whole. It thus should be considered an anomaly and not deter the federal government from pursuing other prosecutions under Sarbanes-Oxley: CEOs who preside over fraud must be held accountable.

As for Mr. Scrushy, he still sits on HealthSouth's board as its largest shareholder, and he says he'll seek his CEO job back. But HealthSouth's chairman has properly declared that's an "appalling" notion. Mr. Scrushy still faces possible federal perjury charges and civil lawsuits from the Securities and Exchange Commission and company shareholders. We trust that, in the end, justice will be served -- in Birmingham or elsewhere.

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