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Senate Republican leader's stock sale under investigation
Scripps Howard News Service


September 23, 2005
Friday PM

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
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 chain.

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 July 8.

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 trading.

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 say?

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 time.

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 at StraubB(at)

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 said.

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 records.


Contact Richard Powelson at powelsonr(at)

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