Jurors Struggle in Scrushy Fraud Case

Federal prosecutors Friday appeared on the verge of a serious setback in their landmark fraud case against Richard M. Scrushy, perhaps Alabama’s best-known businessman, as jurors in Birmingham told the judge they were badly deadlocked on all charges.

The case is important to the government because it is the first prosecution under the 2002 Sarbanes-Oxley corporate reform law, which made it a crime for an executive to falsely certify his company’s financial reports.

For Scrushy, a hung jury would deny him the exoneration he says he deserves. But it could vindicate a controversial legal and public image defense strategy that some in Birmingham say seemed tailored to Scrushy’s Bible Belt home turf.

Since his ouster from HealthSouth Corp. in 2003, Scrushy has launched a Bible-study show on local TV, tied himself to an African American evangelical church and, through a defense lawyer, invoked civil rights imagery while insisting that he is being persecuted by authorities.

Scrushy’s supporters say his religious work is sincere and wasn’t aimed at influencing hometown sentiments or the jurors, half of whom are black.

Defense attorney Donald V. Watkins said he never intended any racially based appeal to the jury. Moreover, “I never detected any alliances along racial lines” during the trial, he said.

In its 10th day of deliberations after a nearly four-month trial, the jury of seven men and five women Friday told the judge that they were divided on all 36 felony charges against Scrushy, the founder and former chief executive of HealthSouth.

The government alleges that Scrushy masterminded a huge accounting fraud at the health services company, inflating its earnings by $2.7 billion over a period of years to artificially pump up the firm’s stock price, which later collapsed -- wiping out billions in shareholder wealth.

Prosecutors said Scrushy’s motive was to increase the value of his stock options, the foundation of a lifestyle that included planes, yachts, horses, a sprawling estate outside Birmingham and lavish vacation homes in Alabama and Florida.

After the jury told U.S. District Judge Karon O. Bowdre about their deadlock, she called the panel into the courtroom to issue a so-called Allen charge, exhorting them to keep working to avoid a mistrial.

“This trial has involved great time and exceptional effort by both the government and the defendant,” Bowdre told the jury. “I have no reason to believe either side could produce more or better evidence in a new trial.”

The jurors will return Monday to resume deliberations.

If convicted on all counts, Scrushy could face life in prison and forfeit most of his fortune.

The government’s case relied heavily on the testimony of Scrushy’s former underlings at HealthSouth, who said he ordered them to cook the company’s books.

Scrushy, 52, contends that the fraud was perpetrated by his subordinates without his knowledge, and that those individuals -- 15 of whom have pleaded guilty -- are trying to blame him in hope of avoiding jail.

In curbside remarks outside the courthouse after Friday’s hearing, Scrushy said he expected to be acquitted. “I had a peace in my spirit as I looked at their faces,” he said of the jurors.

Scrushy declined to testify at his trial, but his defense and image-building efforts began well before a jury was chosen and have extended far beyond the downtown Birmingham courtroom.

In the last two years he has raised his visibility in Birmingham’s evangelical Christian community, particularly among African Americans.

He bought a half-hour time slot on a local TV station for a weekday morning Bible-study program that he hosts with his third wife, Leslie, and that frequently features local black clergy members as guests.

Scrushy was ordained last year as a nondenominational Christian minister and considers the TV show to be part of his ministry, spokesman Charles Russell said Friday.

Along the way, Scrushy left his church in the wealthy white suburb of Vestavia and now attends Sunday services in the blue-collar Roebuck section of town at Guiding Light Church, a largely black congregation headed by Bishop Jim Lowe, a popular televangelist.

“It’s hard not to look at this with suspicious eyes,” said Birmingham native S. Jonathan Bass, a history professor and civil rights expert at nearby Samford University. “It does seem to be as much a political movement as a legal defense on his part, to try to garner sympathy from the local African American community.”

Black evangelicals in the South are traditionally “much more forgiving” than their white counterparts, Bass said, noting that former President Clinton and former Alabama Gov. George C. Wallace both were embraced by black clergy at points in their careers when much of their white religious support had evaporated.

Pastor Sherry Conner, a friend of Scrushy’s who runs a Birmingham ministry for former prison inmates, said Scrushy told him he left the Vestavia church because he felt “judged” by the congregation.

The architect of Scrushy’s defense strategy is Watkins, a banking entrepreneur and former civil rights lawyer perhaps best known nationally for his unsuccessful attempts a few years ago to become Major League Baseball’s first black owner.

During an emotional closing argument at Scrushy’s trial, Watkins recalled that as a child in Montgomery he had been unable to drink from the same water fountain as white children.

It struck some as a jarring conclusion to a trial in which the multimillionaire defendant and all the witnesses were white, but Watkins later said he was simply making a point about injustice, and that jurors could wield the same kind of transformative power as the lawmakers who dismantled segregationist statutes.

In an interview outside the courthouse last week, Watkins said that people who viewed Scrushy’s religious evolution cynically were dead wrong.

“This guy has been involved in religious services with the black community since he was 11 years old,” Watkins said. “And unlike many wealthy people, his financial support has always been highly inclusive.”

Joel M. Androphy, a Houston-based white-collar defense lawyer, said it was only fair for the accused to try to make his case to the broadest possible public, considering that prosecutors often make damaging assertions at news conferences that they don’t have to back up in court.

“It’s not by-the-book lawyering, but it’s smart lawyering,” he said of Scrushy’s defense.

On Friday, co-prosecutor Richard Smith ruled out any possibility of a plea bargain with Scrushy. “There is no discussion of a deal whatsoever in this case,” he told reporters.

Smith also said it was too early in the deliberations for the judge to declare a mistrial.

There would be pressure on the government to retry Scrushy in the event of a mistrial, but Androphy said the result might be the same if the case were retried in Birmingham.

“The government learned a lesson,” he said: “If you’re going to indict somebody like Scrushy, don’t do it on their home turf.”

Times wire services were used in compiling this report.