SEC, Justice Investigate Frist's Sale of Stock
SEC, Justice Investigate Frist's Sale of Stock
By Jeffrey H. Birnbaum and R. Jeffrey Smith
Senate Majority Leader Bill Frist is facing questions from the Justice
Department and the Securities and Exchange Commission about his sale of
stock in his family's hospital company one month before its price fell
The Tennessee lawmaker, who is the Senate's top Republican and a likely
candidate for president in 2008, ordered his portfolio managers in June
to sell his family's shares in HCA Inc., the nation's largest hospital
chain, which was founded by Frist's father and brother.
A month later, the stock's price dropped 9 percent in a single day
because of a warning from the company about weakening earnings.
Stockholders are not permitted to trade stock based on inside
information; whether Frist possessed any appears to be at the heart of
A spokesman said Frist's office has been contacted by both the SEC and
the U.S. attorney's office in Manhattan about his divestiture of the
stock. HCA disclosed separately that it was subpoenaed by the same U.S.
attorney's office for documents that were related to Frist's sale. Frist
and HCA said they are cooperating.
Historians said they cannot recall any other congressional leaders who
have faced federal inquiries into stock sales. Frist has denied any
On Thursday, a Frist spokeswoman said the senator had not discussed the
stock sale in advance with any HCA executives. On Friday, in a statement
from Frist's office, the issue was couched a little differently. It said
the senator "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."
According to Frist's office, the senator decided to sell all his HCA
stock -- held in blind trusts managed by two companies for him, his wife
and his children -- on June 13. Under the rules of the trusteeships,
Frist had no control over the timing of the sale, Frist spokeswoman Amy
When the company disclosed that its second-quarter earnings would fall
short of Wall Street expectations a month later, the stock price slid
steeply. By that time, Frist's shares had been divested. The managers of
one of the trusts told the senator on July 1 that his holdings had all
been sold; the other trust managers said the shares were gone on July 8.
Frist's financial disclosure statement earlier this year placed the
value of his blind trusts at between $7 million and $25 million.
Separately, documents unearthed yesterday by the Associated Press
showed that Frist was told about stock trades in his blind trust. In
documents filed with the Senate, trustee M. Kirk Scobey Jr. told Frist
in 2002 that HCA stock had been transferred to his trust. Scobey,
reached by phone last night, declined to comment.
The AP said that the documents disclosed that HCA stock worth hundreds
of thousands of dollars was placed into Frist's blind trusts several
other times in 2002 as well. Frist maintained in a television interview
in 2003 that he did not know how much HCA stock he owned, if any.
Spokesmen for Frist did not return phone messages last night.
HCA was founded in 1968 by Frist's father, Thomas Frist, his brother,
Thomas Frist Jr., and Jack Massey, the former owner of Kentucky Fried
Chicken. Frist's brother Thomas is a director and a former HCA chairman.
The senator himself is a surgeon.
Democrats were quick to pounce on Frist's problem. Democratic National
Committee Chairman Howard Dean urged the agencies involved to "fully and
vigorously investigate Frist's suspicious stock trade." He added:
"Republicans in Washington have made their culture of corruption the
"Bill Frist has this all upside down," said Rep. Rahm Emanuel (D-Ill.),
chairman of the House Democrats' campaign committee. "He thought Terri
Schiavo could see and his trust was blind."
Watchdog groups also lashed the lawmaker. Melanie Sloan, executive
director of Citizens for Responsibility and Ethics in Washington, said
she intends to petition the Senate Select Committee on Ethics to look
into Frist's actions and determine whether he ran afoul of ethics rules
involving blind trusts. A spokesman for the committee said the panel
does not disclose whether it is investigating a senator.
In addition, the Foundation for Taxpayer and Consumer Rights urged
congressional leaders to appoint an independent observer "to ensure a
thorough, transparent investigation."
Analysts said that Frist's White House hopes might be harmed by the
probe and that Republicans in general might be penalized politically.
Because few voters know Frist well, learning about him through an
investigation "would not be a good way to be introduced to the American
public," said Stuart Rothenberg of the nonpartisan Rothenberg Political
In addition, Rothenberg said the Republicans that Frist leads could
also be tarnished. The probe "adds to the general Democratic
ammunition," Rothenberg said.
"I do think this hurts his future ambitions, even if he's exonerated,"
agreed Jennifer E. Duffy of the Cook Political Report.
Congressional critics questioned the reason Frist gave for selling the
stock. Senate rules allow lawmakers to divest all of their shares in a
company from a blind trust, but only if they assume new duties and find
that their ownership presents the appearance of a conflict of interest.
Frist has held HCA shares in a blind trust since he came to the Senate
in 1995. He was promoted to majority leader in 2002. Frist regularly
deflected concerns about owning the shares while leading health care
debates by saying he kept them in a blind trust.
"I don't know what new duties he would point to above and beyond
becoming majority leader, and that was three years ago," said Fred
Wertheimer, president of Democracy 21, an ethics advocate.
Call, Frist's spokeswoman, said the stock sale was motivated solely by
the senator's desire to avoid an appearance of conflict, but she could
not cite any published criticism of his HCA holdings after April 2004.
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