Frist Sold During Blackout Period

Frist stock sales overlap company's 'blackout' period

By RICHARD POWELSON
Scripps Howard News Service
September 30, 2005

WASHINGTON - Senate Majority Leader Bill Frist's HCA stock was sold almost entirely during a blackout period when the hospital company barred its executives from buying or selling because they were hearing about quarterly earnings.

HCA's second-quarter blackout for insider stock trading was June 15 to July 27, HCA spokesman Jeff Prescott said in an interview. Frist's blind trust sold his stock from June 13 to July 1, Senate records show. But he has said he did not fix a sales date in his June 13 letter to the trustee of the trust ordering the sale. The letter has not been made public.

Frist legally could sell stock at the time since he is not an HCA executive, Prescott said, assuming he did not have insider financial information about HCA that had not yet been announced.

Two federal investigations looking at Frist's stock sales likely will explore whether any HCA insiders tipped the senator about selling near the blackout period. Frist's brother Thomas is an HCA board member, its largest shareholder and HCA's former chairman. Thomas Frist Jr. and his father, now deceased, founded the hospital management company in the 1960s.

Sen. Frist has said he had no HCA information not available to the public and that he and his brother never discuss HCA business.

Both the Securities and Exchange Commission and a U.S. Attorney's Office in New York are reviewing the sales, HCA and Frist's office disclosed earlier. The value of all assets in Frist's trusts last year was $7 million to $35 million, Senate records show.

Frist's trust sold his stock near the time of its 12-month peak price - $58.22 a share June 22, and before the price dropped to $49.90 July 13 due to a preliminary earnings report. His trust has not disclosed how many HCA shares it sold or when or their total sales price.

Frist spokeswoman Amy Call said Frist began consulting experts in April about whether he legally could direct his blind trust to sell all remaining HCA stock. He dated the letter to his trust June 13.

"This (April review) was before HCA could have even foreseen second-quarter earnings trouble," Call said. "Also, Senator Frist had no control over the timing of the stock sale. That was at the discretion of the trustees."

Two experts said proving illegal insider trading can be challenging.

Joan Heminway, a visiting professor of law at Boston College, has studied and written about the handling of the prosecution of Martha Stewart, who served five months in prison for lying to authorities about a 2001 stock sale.

She said in an interview that showing someone received inside information in a fraudulent way in connection with a securities transaction "is very difficult."

In Frist's case, Heminway said, if Frist could not control the date of sale that could help his case: "How could he have bad intent if he ... doesn't have control over when they sell?"

Warren Neel, executive director of the Corporate Governance Center at the University of Tennessee, is a former dean of the university's College of Business Administration, former state commissioner of finance, has served on nine corporate boards and lectures on corporate ethics.

"It's extremely difficult to prove" illegal trading, Neel said, unless there is evidence in documents, board minutes or committee minutes, e-mails or phone logs that show an insider used financial data not yet made public to benefit in stock trades or aid another in such fraud.

SEC spokesman John Nester said each company decides when to impose blackout periods to protect their employees from violating securities law.

In Frist's public comment Monday about why he waited 10 years into his Senate service to divest his HCA stock, he said it was due partly to "continuing questions" by outsiders reviewing his legislative work.

"And looking ahead at my final years in the Senate and what might come next, I have for some time wanted to eliminate even the possibility of an appearance of a conflict" by selling remaining HCA stock, he said. He has been considering running for president in 2008.