BIRMINGHAM, Ala. – Health-South founder Richard Scrushy walked away a free man yesterday after a jury cleared him of all charges in a stunning setback for federal prosecutors who sought to add his name to a list of CEOs convicted of fraud.

Mr. Scrushy was the first of the high profile chief executives to escape conviction since a wave of corporate scandals and indictments followed Enron’s collapse almost four years ago, even though the case against him was widely considered among the strongest.

With all five former CFOs pleading guilty and testifying that Mr. Scrushy led a scheme to inflate earnings by $2.7 billion at the rehabilitation and medical services chain, some viewed the government’s case as stronger than in other fraud trials.

Yet when it finished 21 days of deliberations, the panel acquitted Mr. Scrushy of all 36 counts of fraud, false corporate reporting, and making false statements to regulators.

Eight jurors who met with reporters after the verdict said key witnesses were not credible and the prosecution failed to present substantial evidence linking the fraud to Mr. Scrushy. “The smoking gun wasn’t pointing toward Mr. Scrushy,” said one juror, identified only by court assigned number and not by name.

As the “not guilty” verdicts were read on count after count, Mr. Scrushy started crying, then reached around and hugged his wife, Leslie, in the first row behind the defense table.

“I’m going to go to a church and pray,” Mr. Scrushy said as he left the courthouse. “I’m going to be with my family. Thank God for this.”

Emerging from the building to cheers from his supporters, Mr. Scrushy said, “You’ve got to have compassion, folks, because you don’t know who’s next. You don’t know who’s going to be attacked next.”

Mr. Scrushy still faces civil charges by the SEC.

“I’m disappointed in the verdict,” said U.S. Attorney Alice Martin, who plans to ask the 11th U.S. Circuit Court of Appeals to reinstate obstruction of justice and perjury charges that were thrown out earlier by U.S. District Judge Karon Bowdre.

A corporate law specialist who had followed Mr. Scrushy’s trial was stunned at the verdict.

“There was a mass of evidence against him. I certainly expected the jury to convict. I thought the prosecution could get a fair hearing in Birmingham, but that appears not to be the case,” said Larry Soderquist, director of the Corporate and Securities Law Institute at Vanderbilt University.

Mr. Soderquist noted that the defense appeared to appeal throughout the trial to the sympathies of the jury, composed of seven blacks and five whites. Mr. Soderquist said Mr. Scrushy, a white businessman, has “a very high reputation in the African-American community” as he took on a more visible role at black churches in the months after his indictment.

The decision came in the fifth day of deliberations after Judge Bowdre replaced a sick, white juror with a black alternate.

Prominent black attorney Donald Watkins, who hugged Mr. Scrushy as the verdict was read, had reminded the jury in closing arguments of the struggles of the civil rights era in Alabama and how juries helped the movement succeed. Black ministers were also visible supporters of Mr. Scrushy in the courtroom throughout the trial.

Jurors told reporters after the verdict that race played no part in their views of the case. Instead, one juror said she expected the government to present “something more than hearsay.”

“There were a lot of hopes that weren’t fulfilled for me,” she said.

Herman Henderson, a black pastor who attended the trial almost daily and helped organize support for Mr. Scrushy among the clergy, downplayed the importance of the jury’s racial makeup. “I think that’s an insult to the integrity of the black pastors,” he said.