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Corporate crime a hard case to make

THE BALTIMORE SUN

Getting Americans outraged over corporate skulduggery? Easy. Winning high-profile convictions? Much harder.

Eleven days of deliberation haven't been enough for jurors to decide whether the former chief executive of HealthSouth Corp. is guilty of fraud; they left yesterday without a decision. The Tyco International Ltd. case - with its revelations of lavish personal spending on the company dime - is back in deliberation again after a mistrial. Last week the Supreme Court overturned the conviction of accounting firm Arthur Andersen of Enron infamy, and now former Credit Suisse First Boston banker Frank Quattrone is appealing his obstruction of justice conviction.

Legal experts say this is the story of white collar crime: It's tricky to prove criminal intent, difficult to walk juries through the complexities of financial malfeasance and tough to win against high-paid defense attorneys.

"It's not like a homicide case where you have fingerprints or you have people who can testify: 'I saw him with a gun,'" said Ellen S. Podgor, a Georgia State University College of Law professor who co-edits a white collar crime Web log.

"These crimes are so much more subtle," said Robert H. Lande, a professor at the University of Baltimore School of Law.

Crimes and convictions

That's not to say that all those accused of white-collar offenses are getting away scot-free. The U.S. Department of Justice says that more than 500 of 1,200 individuals or companies charged in cases related to corporate fraud in the past three years have been convicted. Many of the rest are awaiting resolution.

Only 60 of those 1,200 defendants are chief executives, however. Recent cases show how hard it can be to bring them down - never mind that the buck stops at their desk.

"CEOs are much less likely to use e-mail, to attend planning meetings ... and otherwise to participate on a day-to-day basis in conduct that may later be viewed as fraud," said Kirby Behre, a former federal prosecutor who practices corporate criminal defense with the law firm of Paul, Hastings, Janofsky & Walker. "And if they were absent from the table and they were absent from the e-mails and they were absent from the discussions, then the jury might have a much harder time convicting them than their underlings."

Jurors in the HealthSouth case told U.S. District Judge Karon O. Bowdre last week that they couldn't agree on a verdict on any of the 36 counts Richard M. Scrushy is charged with. They finished their 11th day of deliberation yesterday after she ordered them to keep working toward a consensus.

Scrushy, former head of HealthSouth, an Alabama-based rehabilitation and medical services company that overstated its earnings by $2.7 billion, is charged with fraud, conspiracy, false reporting and money laundering. He is the first chief executive brought to court for allegedly violating the Sarbanes-Oxley corporate reporting law.

Location can be key

The jury might be having difficulty with the case because the trial is in Alabama instead of a large city like New York or Washington, suggested John Coffee, director of the Center on Corporate Governance at Columbia University. Scrushy is portraying himself as a hometown boy who made good and also as a deeply religious man - images that might not resonate with big-city jurors.

"The irony here is that the Scrushy trial is like classic American trials of a few decades ago in that the jury knows something about the individual, may even have seen him when he preached before their church," Coffee said.

Deliberation began Thursday in the Tyco case, which ended in a mistrial last year because the judge said one juror was under pressure "from the outside." She was criticized nationally after supposedly flashing an "OK" sign to the defense.

Tyco's former chief executive, L. Dennis Kozlowski, and former chief financial officer Mark H. Swartz allegedly spent millions in company money on unapproved private expenses - including $1 million on a lavish birthday party for Kozlowski's wife in Sardinia.

"These cases almost always turn on fine points of criminal intent, so the ultimate issue in these cases is usually not what was done, but what the defendant or defendants were thinking when they did what they did," said Samuel W. Buell, a former federal prosecutor who took the Arthur Andersen case to trial. He is a law professor at the University of Texas.

"You have to prove it circumstantially," he said. "It's very rare that you have a smoking-gun document."

Procedure problems

And sometimes convictions fall apart. An appellate court will have to decide whether to order a new trial for Arthur Andersen because the Supreme Court ruled last week that jurors were given faulty instructions. It's that tricky question of intent.

The accounting firm was convicted in 2002 of obstructing justice by destroying 2 tons of documents about Enron, the energy-company poster child for corporate fraud, but Arthur Andersen argued that it was simply following its procedures to get rid of all nonessential paperwork. The high court unanimously agreed that the trial judge should have told the jury that a conviction required a finding that Andersen knew its actions were wrong.

It took two trials to convict Quattrone, the Credit Suisse banker, of obstructing justice by destroying documents; the first ended in a hung jury in 2003. Now he is appealing with a similar argument, that he was not purposely shredding documents he knew the government wanted.

"Quattrone has a fair chance of being reversed, partly because of the Arthur Andersen verdict," Coffee said.

But the government hasn't had only setbacks on its high-profile cases. Bernard J. Ebbers, former chief executive of telecommunications giant WorldCom Inc., was found guilty of fraud in March. Domestic guru Martha Stewart went to jail for obstructing justice in connection with a stock sale. Adelphia Communications founder John J. Rigas and one of his sons were convicted last summer of looting the cable company, but the jury deadlocked on another son. Locally, investment manager Nathan A. Chapman Jr. was convicted last year for defrauding the Maryland pension system.

And Martin L. Grass, the former head of Rite Aid Corp., didn't wait to see what the jury thought of charges that he masterminded a $1.6 billion accounting fraud: He pleaded guilty in 2003.

That particular case was unusual. In a move more reminiscent of attempts to collar drug pushers than corporate crooks, the FBI had wired one of Grass' associates to catch the fired chief executive's words on tape.

"That's pretty powerful evidence," said Kim Douglas Daniel, an assistant U.S. attorney in Pennsylvania who was the lead prosecutor.

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