Senate Republican leader's
stock sale under investigation
By RICHARD POWELSON
Scripps Howard News Service
September 23, 2005
WASHINGTON - Two federal agencies are investigating Senate Republican
leader Bill Frist's sudden sale of all of his stock in the hospital-management
company founded by his father.
The HCA Inc. stock value dropped
14.2 percent a month after the Tennessee lawmaker directed the
manager of his blind trust on June 13 to sell all HCA stock.
His trust accounts with a variety of stocks last year ranged
from $7 million to $35 million, public records show.
Issues in Frist stock sale
By BILL STRAUB
Scripps Howard News Service
Q: Who is Bill Frist?
A: Frist, of Tennessee, is
the Senate Republican leader, making him one of the most powerful
men in Washington and a possible presidential contender in 2008.
Before beginning his career as a lawmaker, he was a heart-lung
transplant surgeon. His late father, Thomas, founded the Hospital
Corporation of America, the nation's largest for-profit hospital
Q: What did he do?
A: Frist, his wife and children
all held shares in HCA stock. Frist kept his shares in a blind
trust because of his official position but was empowered to instruct
the fund's trustee to sell those assets. He did so on June 13,
according to a spokesman, and the stock was sold between June
13 and July 1. Stock held by his wife and children was sold by
Q: What's wrong with that?
A: Maybe nothing. But reports
indicate Frist sold the stock at or near its peak value. Shortly
thereafter, HCA issued a disappointing earnings forecast, which
drove the value of the stock down. Shares hit $58.22 on June
22 but slipped to $46.15 on Friday's New York Stock Exchange.
Frist dumped the stock before the report was issued, so he wound
up saving a lot of money. This has led to speculation about insider
Q: What is insider trading?
A: Simply, it is playing the
stock market while in possession of material, non-public information.
It is illegal under federal law to engage in insider trading.
Q: Why is it illegal?
A: Corporate officers always
get the good news or bad news about their company first. If the
news is good, they can buy up stock before the price rises. If
it's bad, they can dump shares before the price tanks. In both
instances, the action comes at the expense of the ordinary stockholder.
Q: Is there any reason to believe
Frist received insider information?
A: There is no evidence, at
least in the public forum, that Frist possessed insider information.
Suspicion exists because of the timing of the transaction and
his family's ties to HCA - besides being founded by his late
father, Frist's brother, Thomas Frist Jr., is a company director,
former official and majority shareholder.
Q: What does Frist have to
A: The senator has not commented
directly. A spokesman, Bob Stevenson, offered this: "Senator
Frist had no information about the company or its performance
that was not available to the public when he directed the trustees
to sell the HCA stock. His only objective in selling the stock
was to eliminate the appearance of a conflict of interest."
Stevenson didn't say why Frist chose this particular moment in
Q: What conflict of interest?
A: Frist has been criticized
in the past for holding HCA stock while directing legislation
on Medicare reform and patient issues. He and his office have
consistently deflected criticism by noting that his assets were
in a blind trust and not under his active control. But Senate
ethics rules provided him with more control than most observers
realized. Under the guidelines, senators can directly order the
sale of any asset in the trust to avoid the appearance of a conflict
of interest. The senator also can communicate to the trustee
matters of concern, including "an interest in maximizing
income or long-term capital gain."
Q: Is Frist under investigation?
A: The Securities and Exchange
Commission and the U.S. Attorney's Office in the Southern District
of New York are looking into the sale.
Q: Have there been any other
recent cases of insider trading?
A: Just do a Google search
for "Martha Stewart."
Contact Bill Straub
Both the U.S. Attorney's Office
for southern New York and the Securities and Exchange Commission
have asked HCA for records, the company disclosed Friday. The
U.S. Attorney's Office issued a subpoena, while the SEC made
a phone request for the same records, HCA spokesman Jeff Prescott
Frist spokesman Bob Stevenson
also disclosed that the SEC contacted the senator's office about
the sales. "The majority leader will provide the SEC any
information that it needs with respect to this matter,"
Stevenson said in a statement.
Frist's staff earlier said
he requested the divestiture of all HCA stock because of periodic
public complaints - 19 written public complaints the past 10
years, according to Amy Call of Frist's staff.
"Sen. Frist had no information
about the company or its performance that was not available to
the public when he directed the trustees to sell the HCA stock,"
Stevenson's statement said.
Neither the SEC nor the U.S.
Attorney's Office would comment.
Frist's assets are in what's
known as a qualified blind trust that does not tell him about
specific stocks held by the trust manager. But Frist received
approval by the Senate's ethics committee to direct the trust
to sell any remaining HCA stock, Call said, to end public criticism
of any potential conflicts of interest. Frist could not set the
date of the stock sale, she said.
Frist, a former transplant
surgeon, is the son of the late Thomas Frist Sr., who also was
a physician. The senior Frist and son Thomas Jr. in 1968 formed
a hospital-management company, Hospital Corp. of America, which
now is called HCA Inc.
Today, HCA manages about 190
hospitals and 80 outpatient-surgery centers in 23 states, England
and Switzerland, according to its Web site.
Frist has been active in pushing
health-care legislation the past decade while denying that he
was doing anything to help his family's HCA investments.
The Foundation for Taxpayer
and Consumer Rights, based in Santa Monica, Calif., on Thursday
asked the SEC to investigate the timing of Frist's divestment
of HCA stock because Frist's brother, Thomas, is on HCA's board,
is its former chairman and HCA's largest individual shareholder.
The HCA stock price closed
at $55.76 on June 13, the day Frist dated a letter to his trust
manager to sell any remaining HCA stock. The stock peaked at
$58.22 June 22 and dropped 14.2 percent to $49.90 on July 13,
the day that HCA released an estimate of quarterly earnings.
All HCA stock held by Frist
was sold by July 1, and that of his wife and three sons by July
8, according to trust-fund letters among the Senate's public
Contact Richard Powelson
Publish A Letter on SitNews Read Letters/Opinions
A Letter to the Editor
Stories In The News