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Rock solid Scrushy case erodes at edges

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On weekday evenings outside the federal courthouse in Birmingham, Ala., lawyers for Richard M. Scrushy often boast of their courtroom victories to reporters.

"A lot of what the government is saying is just not panning out," Scrushy attorney Lewis Gillis said one day recently after court adjourned, according to the Birmingham News.

The fraud case against HealthSouth Corp. founder Scrushy was supposed to be a slam-dunk, more solid than any in the recent spate of high-profile, white-collar indictments.

With five -- count 'em, five! -- former chief financial officers testifying that Scrushy ordered up $2.7 billion worth of funny numbers, how could anyone doubt his guilt?

A jury in New York City convicted WorldCom Inc.'s Bernard Ebbers on what seemed to be thinner evidence.

"In the grand scheme of corporate prosecutions, (the Scrushy) case probably ranks at the top in terms of the strength of the government's case," says Robert Mintz, a former federal prosecutor and now a white-collar defense lawyer at McCarter & English in New Jersey.

But that doesn't ensure conviction.

In the 12 weeks since the trial opened, prosecutors have stumbled, defense lawyers have skewered key witnesses and U.S. District Judge Karon Bowdre has at times shackled the prosecution while giving defense lawyers remarkably free rein.

Limiting prosecutors

She threw out Scrushy's testimony before the Securities and Exchange Commission, in which, the prosecution says, Scrushy lied and lied and lied.

And now that the prosecution has finished putting up its evidence, Bowdre this week trimmed eight counts from the 58-count indictment, including two counts prosecutors asked her to dismiss because they botched the evidence so badly. She is thinking of tossing out more, she said at a hearing last week, while casting doubt on the charges she allowed to stay in.

"The proof that the government has offered of the defendant's knowing participation in the conspiracy rests in the testimony of the convicted co-conspirators, who the court recognizes received or anticipate receiving substantial benefit for their cooperation with the government," she said, referring to breaks they got in their sentences.

Still, at the moment there are 52 counts against Scrushy and plenty of good evidence. The defense began presenting its case Thursday.

Jury nullification

The thing is, his lawyers don't have to eviscerate every bit of evidence so much as levitate Scrushy above it all. They just need to muddy the picture and convince jurors he's a good fellow victimized by that mean old federal government.

If Scrushy's lawyers can pull that off, some jurors just might forgive even proven wrongdoing.

"You do have the wild-card issue of how the hometown jury is going to view Mr. Scrushy versus the government," says Mintz.

There is a name for it when jurors vote to acquit someone they believe broke the law: nullification. Pre-Civil War juries in the North refused to convict people who violated the runaway slave act, for example. More recently, juries have forgiven crimes because of the race of the accused.

There is a chance for nullification in this case if the jury likes Scrushy enough and dislikes the prosecution.

Scrushy and his lawyers have been softening his image with a daily religious show on cable television and using courtroom visitors to show support. Scrushy is white, but much of his support is from blacks, who also make up much of the jury.

A living symbol

Former Birmingham Mayor Richard Arrington showed up in Scrushy's rooting section one day as a living symbol that the feds can hound an innocent man. The city's first black mayor, Arrington was subjected to a very public, very long corruption investigation but was never charged.

Meanwhile, the Scrushy team gets plenty of help from the prosecution itself, whose lawyers often seem plodding and annoying compared with the sharp and funny guys at the defense table.

And then there are the mistakes of substance, as when prosecutors realized they had to drop a mail-fraud charge because the event happened in Atlanta, not Birmingham, as the indictment claimed. One count in a long indictment doesn't matter, except to show how amateurish the prosecution can be.

The judge's ruling to throw out Scrushy's SEC testimony is a blow to the prosecution. Her decision not only doomed three perjury counts, it also robbed the government of a chance to show how deceitful Scrushy can be.

How battered is the government's case?

Multiple CFOs testified they showed Scrushy the real numbers, and he told them they had to do whatever they needed to do to meet Wall Street's targets.

"All public companies fudge their numbers," one CFO quoted Scrushy as telling him.

Off the mark

After an unwitting treasurer showed Scrushy how far off the mark HealthSouth's reported numbers were, Scrushy listened, ended the meeting and then showed up at the CFO's office, red-faced and angry. He yelled at the treasurer and the CFO for having the nerve to tell him how to run his own company, the men testified.

Finally, when another CFO was balking at signing yet another set of phony numbers, Scrushy said into a hidden microphone, "Nobody's looking at these numbers." He asked, "You're going to show them to them?"

He called it a "stupid" thing to do, and he said, "You are going to take all those other people down with you."

Scrushy never said straight out on tape that he knew about the cooked books. But it's hard to give any other explanation to what he told the CFO who was hesitating to certify as true numbers that were false.

"Don't you want to go down fighting?" Scrushy asked him. This, indeed, seems to be have been the approach Scrushy himself took.

Woolner is a columnist for Bloomberg News.

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