Frist stock sale investigated by federal prosecutors, SEC
September 23, 2005
WASHINGTON – Federal prosecutors and the Securities and Exchange Commission have opened investigations into Senate Majority Leader Bill Frist’s sale of stock in a hospital operating company founded by his family. Documents show Frist was updated several times about his investments in HCA Inc. and other transactions even though they were held in blind trusts.Despite the updates, Frist insisted in public statements afterward that he didn’t know what was in the trusts, specifically denying knowledge of his HCA holdings.Nashville, Tenn.-based HCA said Friday it had received a subpoena from prosecutors for the Southern District of New York, asking for documents the company believes are related to Frist’s stock sale.Prosecutors also have contacted the senator’s office, Frist spokesman Bob Stevenson said. He said neither the senator nor his office had received a subpoena.Frist’s office confirmed the SEC was looking into the sale.The Tennessee Republican, a potential presidential candidate in 2008, sold the stock at a time when insiders in the company also were selling off shares worth $112 million from January through June of this year. Aides say he sold his stock to avoid any appearance of a conflict of interest.”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,” Stevenson said in a statement.Frist, asked in a television interview in January 2003 whether he should sell his HCA stock, responded, “Well, I think really for our viewers it should be understood that I put this into a blind trust. So as far as I know, I own no HCA stock”Frist, referring to his trust and those of his family, also said in the interview, “I have no control. It is illegal right now for me to know what the composition of those trusts are. So I have no idea.”Documents filed with the Senate showed that just two weeks before those comments, the trustee of the senator’s trust, M. Kirk Scobey Jr., wrote to Frist that HCA stock was contributed to the trust. It was valued at $15,000 and $50,000.The documents filed by the trustees of Frist’s blind trusts were obtained by The Associated Press on Friday.On Nov. 20, 2002, Scobey wrote Frist that 14,781 shares of HCA were sold, along with three other investments. The same day, Scobey wrote that four other investments were sold, none of them HCA stock.On May 16, 2002, Scobey advised Frist that four investments were contributed to a Frist blind trust, including HCA stock valued at $500,000 to $1 million. A second letter the same day mentions the same four investments going into a different trust, but with different valuations, including HCA stock valued at $250,000 to $500,000.On Jan. 14, 2002, a trustee for Frist’s children notified the secretary of the Senate that two investments were added to the blind trusts of Frist’s sons Jonathan and Bryan – including HCA stock valued at $5,000 to $10,000.Stevenson, the Frist spokesman, said he could not comment on the updates received by the senator. He added that Frist properly notified the Senate Ethics Committee this summer that he was initiating the sale of all remaining HCA shares, a requirement under Senate rules. All the stock was sold by July 1, including shares owned by his wife and children.”As with the SEC, the majority leader will provide the U.S. attorney’s office with any information that it needs with respect to this matter,” Stevenson said.The SEC also contacted HCA on Friday to informally request copies of the subpoenaed documents, said company spokesman Jeff Prescott. “We of course will comply with that request,” he said.Herb Haddad, a spokesman for the U.S. attorney’s office in Manhattan, said the office had no comment on the matter. SEC spokesman John Nester declined to comment Friday on whether the agency had contacted Frist’s office.David Becker, who was general counsel at the SEC from 2000 to 2002, noted that both Frist and HCA were being put under scrutiny.In insider trading cases, “you connect the dots not by simply going from one dot to another but by starting at both dots and working toward the middle,” Becker said. “The facts that are public don’t come close to demonstrating wrongdoing. It’s way too premature to have any judgment.”HCA, the nation’s largest for-profit hospital company, was founded by Frist’s father, the late Thomas Frist Sr. His brother, Thomas Jr., was formerly its CEO and chairman and remains on the board of directors.Frist, a heart surgeon by training, asked a trustee to sell all his HCA stock in June, near a 52-week price peak of $58.40 a share. Reports to the SEC showed HCA insiders sold about 2.3 million shares.Frist’s sale came about two weeks before the company issued a disappointing earnings forecast that drove its stock price down almost 16 percent by mid-July and still have not recovered. HCA rose $1.70 Friday, closing at $47.60.The value of Frist’s stock at the time of the sale was not disclosed. Earlier this year, he reported blind trusts with all holdings valued at $7 million to $35 million.—Researcher Rachel Landau in Washington and Associated Press writer Larry Neumeister in New York and contributed to this report.