Verdict unlikely to
deter pursuit of Nacchio case
By Jeff Smith, Rocky Mountain News
Wednesday, June 29, 2005
Former HealthSouth CEO Richard Scrushy's acquittal points to the difficulty of prosecuting a corporate fraud case that relies on circumstantial evidence and witnesses who themselves have credibility issues.
But the Scrushy verdict is unlikely to sway the federal government from pursuing a possible criminal case against former Qwest Chief Executive Joe Nacchio, former prosecutors said Tuesday.
"No, in itself it won't deter federal prosecutors. They already know what they're up against (in corporate fraud cases)," said Tony Leffert, a former federal prosecutor now with the Denver law firm of Robinson Waters & O'Dorisio.
Said Craig Silverman, a former chief deputy district attorney in Denver: "I'm not sure that (Nacchio) would have the home-court advantage in Denver, Colo., that Richard Scrushy might have enjoyed to at least some degree in his hometown (of Birmingham, Ala.)."
Silverman noted that while Scrushy had made civic contributions to Birmingham, Nacchio "was always regarded as a carpetbagger (in Denver). He lived in a hotel and commuted to New Jersey every weekend. I think that's a huge difference."
Scrushy, who was found not guilty of all 36 charges against him, is the first major chief executive to be exonerated during the government's crackdown on white-collar crime after the Enron debacle in 2001.
To some, the case seemed a slam-dunk: After all, five ex-finance executives who already had pleaded guilty testified against Scrushy, who was accused of enriching himself from stock sales and bonuses while HealthSouth's earnings were being inflated.
Nacchio has been accused of similar wrongdoing at Qwest in a civil fraud case by the Securities and Exchange Commission.
The U.S. attorney's office in Colorado continues to conduct a criminal investigation of former Qwest executives. Jeff Dorschner, spokesman for the office, declined comment about the possible impact of the Scrushy case on that investigation.
Based on a tentative plea agreement with federal prosecutors by former Qwest Chief Financial Officer Robin Szeliga, the government may be zeroing in on a period around April and May 2001, when Nacchio sold about $50 million of Qwest stock.
Nacchio repeatedly has denied any wrongdoing.
Leffert said federal prosecutors always have a challenge proving fraud against former chief executives.
The cases almost always hinge on circumstantial rather than direct evidence, he said, because the former CEOs tend to be highly educated and sophisticated people "who aren't going to leave e-mails and memos where they admit wrongdoing."
"And more times than not the witnesses have credibility issues," Leffert added, because they are cooperating with the government pursuant to plea bargains.
It's also critical for prosecutors "not to try to prove everything under the sun," Leffert said. "Those that are successful typically narrow in on specific conduct."
The fact the government indicted Scrushy on 36 counts could be an indication that it "overcharged and that it was confusing to a jury," he said.
Leffert and Silverman said a good defense lawyer can make it difficult for the government to prove guilt beyond a reasonable doubt and that the jury pool and the location of the trial itself can make a big difference.
Silverman said he believes one of the biggest lessons for "corporate bigwigs" from the Scrushy case is to resist the temptation to testify. Scrushy didn't take the stand.
"Contrast the Scrushy results with other high-profile corporate defendants who tried to explain away their involvement in any criminality like Bernie Ebbers (former WorldCom CEO) and Dennis Kozlowski (former Tyco CEO)," Silverman said, "and you come to the conclusion that exercising one's right not to testify is sometimes highly advisable."
Simply, it's difficult for a former CEO who made tens or hundreds of millions of dollars to explain why he didn't know what was going on at his company, Silverman said.