“The nation’s largest chain of rehabilitation hospitals yesterday was accused of sweeping accounting fraud stretching back almost to the company’s inception, in a case that regulators said might rival wrongdoing at Enron and WorldCom,” writes Milt Freudenheim in today’s New York Times.

“The Securities and Exchange Commission said that HealthSouth and Richard M. Scrushy, 50, the company’s flamboyant founder and chief executive, falsified profits and assets for decades in a scheme to delude Wall Street investors and protect Mr. Scrushy’s own large holdings of HealthSouth stock.”

“The chief financial officer of HealthSouth has already agreed to plead guilty to fraud and to cooperate with investigators, who estimate the company has added at least $1.4 billion in nonexistent earnings to its profits since 1999 and inflated company assets by $800 million to cover up fraud.”

” ‘HealthSouth’s fraud represents an appalling betrayal of investors,” Stephen M. Cutler, the S.E.C.’s director of enforcement, said. ‘HealthSouth’s standard operating procedure was to manipulate the company’s earnings to create the false impression that the company was meeting Wall Street’s expectations.’ “

“Mr. Scrushy, a former physical therapist, was a junior official of a small Texas hospital chain before he founded HealthSouth in Birmingham, Ala., when he was 30 years old. Capitalizing on generous Medicare payments for physical rehabilitation, he built enough personal wealth to become known as the Donald Trump of Birmingham. Beneficiaries of his company’s charity named numerous buildings in the city after him, and he bought himself three houses. HealthSouth acquired a fleet of at least seven corporate jets, which he often piloted.”

“Despite such outward signs of success, HealthSouth struggled almost from the day it first sold stock to the public in 1986, according to the civil complaint filed by the S.E.C. against HealthSouth and Mr. Scrushy in United States District Court in Birmingham. Shortly after it went public, the complaint says, Mr. Scrushy instructed the company to inflate its earnings to match Wall Street analysts’ expectations and thus keep the company’s stock price high. If the actual numbers fell short of expectations, Mr. Scrushy told managers to ‘fix it’ with false earnings, the complaint said.”

“HealthSouth executives and accountants urged Mr. Scrushy more than once to stop inflating earnings, but he ordered them to continue, the complaint said. At one of these meetings, in 1997, he said, in effect, “not until I sell my stock” in the company, according to the complaint.”

“Mr. Scrushy earned an apparent profit of $77 million over the years from selling more than 7.7 million shares of HealthSouth stock. Many of his sales occurred from 1999 to 2001, when HealthSouth reported profits before taxes and minority interest of $1.22 billion — 100 times what the S.E.C. says was the correct amount. Another $180 million in fraudulent profits were reported in the first six months of last year, the S.E.C. says.”