Defense Rests in Scrushy Trial

Richard Scrushy's (search) defense rested Wednesday without the fired HealthSouth Corp. (search) chief taking the stand to deny charges that he directed a $2.7 billion fraud at the rehabilitation chain.

After calling more than 20 witnesses to rebut prosecution claims that Scrushy was at the heart of the scheme, defense lawyers told the judge they were finished with their case.

"Your honor, at this time the defense rests," said Scrushy attorney Jim Parkman.

Prosecutors grinned broadly as Parkman walked away from the podium; so did the defense. Jurors looked at each other with surprised expressions.

U.S. District Judge Karon Bowdre excused jurors after the defense announcement, saying prosecutors needed time to discuss possible rebuttal evidence and she needed to confer with both sides.

The decision on whether Scrushy should testify was a calculated gamble either way: Without him taking the stand, jurors won't get to hear his explanation of how he failed to detect a fraud the defense says went on for years without his knowledge.

But Scrushy could have been hit with a blistering cross-examination, including questions about secretly recorded tapes that prosecutors contend prove he knew of the crime.

In a statement to reporters, Scrushy attorney Donald Watkins said the defense team "unanimously concluded that we are comfortable with where the case stands and there is no need for further witnesses."

Prosecutors contend Scrushy led subordinates in a conspiracy to overstate HealthSouth earnings for seven years to make it appear HealthSouth was meeting Wall Street forecasts. Scrushy made about $249 million from the accounting scam, a prosecution witness testified.

The defense blames the fraud on the 15 former HealthSouth executives who pleaded guilty, including all five finance chiefs who served under Scrushy, the company's primary founder.

The final defense witness compared Scrushy to Michael Jordan and Bill Gates as the defense tried to show the fired CEO was worth the millions he made while building HealthSouth into an industry leader — despite the huge fraud he is accused of leading.

Under questioning from defense attorney Art Leach, defense expert Wayne Guay said Scrushy was due multimillion-dollar compensation packages even after HealthSouth stock prices tanked in the late 1990s, just like Jordan was still valuable on the backside of his NBA career.

Guay also testified that as HealthSouth's primary founder, there wasn't anything wrong with Scrushy selling stock and exercising options in the rehabilitation chain — the same way Gates makes "hundreds of millions" annually from stock in Microsoft Corp. (MSFT)

"Most founders do tend to have quite a lot of stock and options holdings," said Guay.

The comparisons came under sharp attack from prosecutor Colleen Conry on cross-examination, particularly the one to Jordan.

With a graph of HealthSouth's share prices projected before jurors, Conry pointed out that the stock dropped well below the S&P 500 average in 1998, two years after the fraud began, and never recovered.

"Doesn't that mean Mr. Scrushy really isn't Michael Jordan?" she asked. "Would Michael Jordan be above the S&P 500, especially if he was on steroids?"

The trial was briefly delayed as officials evacuated the courthouse for about 15 minutes after a passer-by spotted smoke coming from the roof. U.S. District Judge Karon Bowdre told jurors a cooling system had overheated.

"There was no fire. There was no danger," she said.

Guay, a consultant who teaches at the prestigious Wharton School (search) at the University of Pennsylvania, testified as the defense tried to show jurors that Scrushy deserved the big compensation packages he got while running the rehabilitation chain.

Scrushy, who had as much as $250 million in HealthSouth stock and options at one time during the earnings overstatement, made more in total compensation than all but about 17 percent of chief executives of companies listed in the S&P 500 during the period, Guay said.

"With respect to his total compensation there is no question he was a highly paid CEO," Guay testified.

But Guay told the mostly middle-class jury that the best executives earn the biggest dollars.

"If you've shown yourself to be very good ... you're going to command more in the marketplace," he said.

Referring to HealthSouth's rise from a startup firm in 1984 to an industry leader by the '90s, Guay said it was unusual for a company to become a "superstar" as quickly as HealthSouth, which Scrushy helped found.

Free on $10 million bond, Scrushy is the first chief executive tried under the Sarbanes-Oxley (search) corporate reporting law, passed in 2002 in response to a string of corporate frauds. He also is charged with conspiracy, fraud, money laundering and obstruction of justice.

Scrushy could receive what amounts to a life sentence and be ordered to forfeit some $278 million in assets if convicted.