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Was HealthSouth's CEO Distracted by TV Projects?

Staff, Investors Wonder: Was Scrushy Distracted by Entertainment Ventures?

Mar 26, 2003 | Wall Street Journal Talk about the wonder years.

Well before the government announced accounting-fraud charges against HealthSouth Corp. and Richard M. Scrushy, its chairman and chief executive, some employees and investors had wondered about business decisions made by the company's leader.

Particularly puzzling, according to current and former employees, was Mr. Scrushy's increasing involvement with the entertainment industry and his decision last year to hire Jason M. Hervey, a former child television star, as senior vice president of media and communications.

Mr. Hervey, who played the bullying older brother on the popular TV series, "The Wonder Years," had worked as an actor and as a video and television producer.

At HealthSouth, he helped produce a television show aimed at teenagers before assuming his executive position.

In addition to performing duties such as responding to media inquiries, Mr. Hervey was seen in recent months as a sort of sidekick to Mr. Scrushy, people familiar with the company say.

Mr. Scrushy's relationship with Mr. Hervey is viewed inside HealthSouth as an indication of how Mr. Scrushy had become distracted with business ventures outside of HealthSouth's core business of running rehabilitation clinics and surgery centers. "Some shareholders were not happy about seeing him spend his time on these things, and some got fed up and gave up and sold their stock," said Kemp Dolliver, an analyst with SG Cowen Securities. "You have to wonder, 'Where do they get the time?' "

Mr. Hervey, whose most recent title was chief marketing and communications officer, was dismissed Friday. A company spokesman said the action was taken because, with the burgeoning federal investigation of accounting fraud at HealthSouth, it needed someone with more experience to deal with the press. Mr. Hervey couldn't be reached for comment.

Mr. Scrushy's interests went beyond television. In August 2001, HealthSouth created GFI Enterprises LLC, according to Alabama incorporation records. One of GFI Enterprises' purposes, people familiar with the effort say, was to promote music groups, with a goal of signing them to major recording contracts.

The firm's first project was a girl band called 3rd Faze a trio of young female singers originally formed to sing as part of a HealthSouth-sponsored traveling health-promotion program for children and young teenagers, called the Go for It! road show. Mr. Scrushy became the band's manager and often had the group appear at HealthSouth corporate events, including a large gathering of administrators last year in Orlando, Fla.

"Richard loves music and wanted to be involved with it," says Tim Coons, an independent record producer in Orlando who helped develop 3rd Faze and worked with GFI Enterprises until January as a vice president. Neither Mr. Scrushy nor his lawyer could be reached for comment.

Mr. Hervey began working with HealthSouth in mid-2001, when he was a producer with Los Angeles-based Mandalay Sports Entertainment, a firm hired to produce a television show based on the Go for It! road-show concept.

Mr. Scrushy soon hired Mr. Hervey to work for HealthSouth, with responsibility for the television show and related work.

Earlier this year, HealthSouth canceled its road show, eliminating a performance venue for 3rd Faze. The group's own Web site is out of commission; a fan site says the group has broken up.


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