On October 26, 2005, Siegelman was indicted on new charges of bribery and mail fraud in connection with Richard M. Scrushy, founder and former CEO of HealthSouth. Two former Siegelman aides were charged in the indictment as well. Siegelman was accused of trading government favors for campaign donations when he was governor from 1999 to 2003 and lieutenant governor from 1995 to 1999. Scrushy was accused of arranging $500,000 in donations to Siegelman's campaign for a state lottery fund for universal education, in exchange for a seat on a state hospital regulatory board. Scrushy, who had served on the state hospital regulatory board over the past three Republican administrations, had recently been investigated for his part in the HealthSouth Corporation fraud scandal which cost shareholders billions
During his trial, Siegelman continued his campaign for governor, running against Lt. Governor Lucy Baxley and minor candidates in the Democratic primary on June 6. Despite Baxley's relatively low-profile campaign, she easily defeated Siegelman in the primary with almost 60% of the vote compared to Siegelman's 36%. Siegelman was convicted of federal corruption charges just three weeks later. Baxley went on to lose to incumbent Bob Riley in the general election. Riley won 58% of the vote; Baxley, just under 42%.
On June 29, 2006, a federal jury found both Siegelman and Scrushy guilty on seven of the 33 counts in the indictment. Siegelman was convicted on "one count of bribery, one count of conspiracy to commit honest services mail fraud, four counts of honest services mail fraud and one count of obstruction of justice", according to a press release from the U.S. Department of Justice. Siegelman was acquitted on 25 charges, including the indictment's allegations of a widespread RICO conspiracy, and his former chief of staff, Paul Hamrick, and transportation director, Mack Roberts, were acquitted of all charges. Siegelman was represented by Mobile attorneys Vince Kilborn and David McDonald, along with Greenwood attorney Hiram Eastland and Notre Dame law professor G. Robert Blakey, who is an authority on RICO. Siegelman was sentenced by Judge Mark Everett Fuller to more than seven years in federal prison and a $50,000 fine.