A little too much Southern comfort at HealthSouth

BIRMINGHAM, Ala. — Evidence in Richard Scrushy’s fraud trial has made the goings-on at HealthSouth Corp. sound more like an episode of “The Dukes of Hazzard” than the operations of a Fortune 500 company.

After eight weeks of testimony, a picture has emerged of a Southern-fried culture at the rehabilitation and medical services chain.

According to testimony, Scrushy and another executive held a meeting in the middle of a sprawling Alabama lake known for floating beer bashes and bass fishing, and Scrushy once told a CFO they all needed to stay aboard “this pickup truck” — HealthSouth — despite its financial problems.

Meanwhile, a witness told of a bar brawl that broke out at a going-away party for a key executive who quit the company rather than get involved in the fraud, which prosecutors say amounted to $2.7 billion in inflated earnings over about seven years.

The testimony has made HealthSouth seem a long way from the starched-shirt world of Wall Street. The company’s current managers say a new way of doing business has taken hold in the two years since Scrushy last headed the corporation.

“At the new HealthSouth we are creating a culture based on quality, honesty, integrity, compliance and mutual respect,” current CEO Jay Grinney said in a recent article for Modern Healthcare magazine.

Company officials declined interview requests, citing legal concerns amid the Scrushy trial.

Prosecutors say Scrushy was at the heart of a conspiracy to overstate HealthSouth earnings from 1996 through 2002, directing subordinates to commit fraud so it would appear the company was meeting Wall Street estimates.

The defense claims Scrushy — a small-town guy who cut grass and pumped gas as a teen before earning a degree in respiratory therapy — was duped by underlings who committed fraud on their own while climbing the corporate ladder.

Scrushy is the first CEO tried under the Sarbanes-Oxley law, passed in 2002 to clamp down on fraud in response to a wave of corporate scandals. He also is charged with conspiracy, fraud, obstruction of justice, perjury and money laundering.

Free on $10 million bond, Scrushy could get what amounts to a life sentence and be ordered to forfeit as much as $278 million in mansions, cars, aircraft, boats, antiques, jewelry and other assets if convicted.

The trial, which began Jan. 25 and could last through May, resumes Monday with defense cross-examination of Weston Smith, the fifth and final HealthSouth finance chief to link Scrushy to the fraud. Smith was the first of 15 former executives to plead guilty in the conspiracy.

He also was the one who brought the image of pickup-driving good ol’ boys into the courtroom this past week as he described how Scrushy talked him into signing financial statements in 2002 that contained millions in overstated cash and assets.

“His analogy was that we all rode in together in this pickup truck and we were all going to ride out on it,” said Smith, testifying under a plea deal with prosecutors.

Smith also was the second witness to claim Scrushy talked about getting finished with the fraud and “going to the lake,” an apparent reference to Lake Martin, a playground for both the rich and not-so-rich.

Another former CFO, Bill Owens, said he and Scrushy once held a meeting on the lake to discuss the fraud. In testimony that painted odd mental pictures in a dour courtroom, Owens said he stopped his Seadoo on the water beside Scrushy’s seaplane to talk about the conspiracy.

Then there was that bar fight.

Former CFO Mike Martin, who grew up in a tough neighborhood near Birmingham’s old steel mills, testified about punching co-worker Leif Murphy at Murphy’s going-away party after Murphy decided to quit HealthSouth rather than get involved in the fraud.

Martin — a self-described hothead who acknowledged threatening to kill “a couple” of people at work — testified it was probably a good thing others separated him and Murphy.

“If they hadn’t have broken it up, he would have whipped my butt,” the former CFO said with a sheepish grin.

Jurors also heard that Owens was part of two garage bands fronted by Scrushy, a rock group named Proxy and a country group called Dallas County Line in homage to the rural backwater where Scrushy grew up.

The country band eventually hired professional backing musicians and produced two recordings. One featured the 1995 song “Honk if you Love to Honky Tonk,” which had a video that featured appearances by guitar picker Chet Atkins and athlete Bo Jackson.

Scrushy has recently been projecting a more church-going image, singing hymns with his third wife Leslie, who is his former secretary at HealthSouth and the daughter of a Methodist preacher. Scrushy has preached in at least two churches during his trial, and his wife has been seen praying with supporters around the courthouse.

The couple have taken a break during the trial from their daily TV show, which typically features Bible study.