Former HealthSouth Corp. CEO Richard M. Scrushy was found not guilty today by the jury in the trial over over his alleged participation in a $2.7 billion accounting fraud at the huge health services company. Along with the sentencings in the Enron-related Nigerian Barge trial, the reversal in the Arthur Andersen case and the recent acquittal of Theodore H. Sihpol, the acquittal of Mr. Scrushy is the latest in a series of setbacks to governmental prosecutors’ attempts to criminalize business figures in the period after the meltdown of Enron at the end of 2001. Previous posts on the Scrushy case are here and here.
The Scrushy trial had turned into the legal equivalent of the Bataan Death March, as the jury was forced to endure four months of trial and 21 days of deliberations before arriving at a not guilty verdict on all 36 criminal counts against Mr. Scrushy, most of which related to conspiracy and securities fraud charges. The acquittal also marked the Department of Justice’s failure in its first attempt to convict a CEO for violating the 2002 Sarbanes-Oxley Act that requires CEO’s and CFO’s to confirm the accuracy of corporate regulatory filings personally.
But at the end of the day, the Scrushy case will stand for the dubious nature of the government’s policy of criminalizing merely questionable business practices. As much as the government protests that true business crimes are deterred by such vigorous prosecution of questionable business conduct, the fact of the matter is that any reasonable interpretation of justice is strained in squaring the result in the Scrushy case with the results in the Martha Stewart case, the sad case of Jamie Olis, the case of Dan Bayly, the case of William Fuhs, the DOJ’s handling of the Global Crossing case, the Tyco case, the Bernie Ebbers case and many others. As Professor Ribstein has noted:

So white collar prosecutions become a sort of lottery. If the prosecution can come up with something colorful, it wins, or maybe loses if it’s too colorful (Sardinia). These are not the elements of a rational criminal justice system.

Professor Ribstein comments further here.

The following is noted at the end of this NY Times article about American International Group Inc.‘s proxy statement that was recently published in anticipation of the company’s annual meeting on August 11:

A.I.G.’s proxy also noted that the cost of insuring directors and officers against lawsuits had increased significantly since the company disclosed a number of accounting irregularities earlier this year. The premium A.I.G. paid for such coverage last year was $9.4 million; the current premiums are about $32.8 million.

Ouch!

Following on this post from over the weekend regarding the developments in the ongoing criminal investigation of lawyers in two firms who used to practice together in the well-known plaintiffs class action law firm formerly known as Milberg Weiss Bershad Hynes & Lerach, this Wall Street Journal ($) article reports that Paul L. Tullman, a former stockbroker and lawyer who referred clients for class action cases to the firm, is cooperating with federal investigators in their criminal investigation of the way in which the firm recruited class representatives in the class action cases that the firm handled. Mr. Tullman was charged with in May 2004 with fraud and false statements on tax returns, and the WSJ reports that he copped a plea late last year. The plea agreement remains under seal.
As Professor Ribstein has pointed out, there is already a witch hunt aura to the government’s recent public disclosures regarding its investigation into Milberg Weiss’ practices. Referral fees in all types of lawsuits have been common and legal for decades, and there is not even an allegation yet — much less proof — that Milberg Weiss failed to disclose any such fees in either its tax filings or disclosures to the various federal courts in the various class action cases. Nevertheless, the government is using leaks of information to play to the general public’s resentment toward wealthy lawyers in turning up the pressure in its investigation of Milberg Weiss. Business interests may consider Milbert Weiss’ current plight sweet irony, but that does not make what the government is doing right.
As noted in this earlier post regarding Eliot Spitzer’s similar tactic toward former AIG chairman and CEO, Maurice “Hank” Greenberg, after over five years of investigating Milberg Weiss, if the government has a case against the firm, then it should get on with it.