HealthSouth Board Planned Stock Options for Mottola

HealthSouth Corp., an operator of surgical centers and rehab clinics that is mired in an accounting scandal, said Wednesday that its board last year approved giving 250,000 stock options to former Sony Corp. music chief Tommy Mottola as HealthSouth’s chief executive promoted a pop group.

Mottola, who has guided the careers of such pop stars as Mariah Carey and Jennifer Lopez, said through a spokesman that he never exercised the options and was unaware that HealthSouth’s board had approved them.

Ousted HealthSouth Chief Executive Richard Scrushy had advised the board that the proposed options grant was “in furtherance of the entertainment strategy he was pursuing for the company,” HealthSouth spokesman Andy Brimmer said. “While the option grant was approved, it was never completed by Mottola.”

Scrushy was trying to promote a pop group, 3rd Faze, that had been touring with a HealthSouth-sponsored roadshow called “Go for It,” Brimmer said.

A spokesman for Mottola, who since has started Casablanca Records with Universal Music Group, confirmed that he signed 3rd Faze to a deal when he ran Sony, but the group never recorded an album.

“There was no quid pro quo,” said Mottola’s spokesman, Howard Rubenstein. “They discussed the possibility of Mottola receiving options, but he was never informed that the board approved those options. He never exercised any options and never benefited from them.”

Mottola was granted the options in February 2002 because he was asked to join an advisory committee on entertainment that was never formed, Rubenstein said. “HealthSouth’s CEO approached Mottola on how to develop these mini-tours that were being scheduled,” he added.

Asked why surgical centers and physical rehab clinics needed an “entertainment strategy,” HealthSouth’s Brimmer said: “The new management team and the board are focused squarely on the core businesses of the company, which are the delivery of patient care.” Prosecutors have accused Birmingham, Ala.-based HealthSouth and several of its officers of inflating company earnings by about $2.5 billion over several years.

Scrushy remains the central figure in the investigation, although no criminal charges have been filed against him and he has denied any wrongdoing.

Scrushy, who founded HealthSouth in the mid-1980s, has flirted with the music business on several occasions. He owned Dallas County Line, a musical production business, and performed in a band of the same name.

One of his other bands, Proxy, included former Chief Financial Officer William Owens and performed regularly at HealthSouth functions.

So far, 14 former HealthSouth executives, including five ex-chief financial officers, have admitted guilt and agreed to cooperate with prosecutors investigating the massive accounting fraud that has left the company battling to avoid bankruptcy.