Probe Into Frist Stock Sale Opens

Federal prosecutors and the Securities and Exchange Commission are looking into Senate Majority Leader Bill Frist's sale of stock in HCA Inc. at a time when insiders at the hospital operating company were also selling off shares.

HCA, based in Nashville and founded by the Frist family, said Friday that 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, a Tennessee Republican, has been considered a potential presidential candidate in 2008. Aides say he sold his stock to avoid any appearance of a conflict of interest.

Frist's office confirmed the SEC was looking into the sale.

"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."

Frist spokeswoman Amy Call declined on Friday to comment about the timing of the sale, saying, "His only objective in selling the stock was to eliminate the appearance of a conflict of interest."

HCA, the nation's largest for-profit hospital company, was founded by Frist's father. His brother was formerly its CEO and chairman and remains on the board of directors.

Frist 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, worth about $112 million, from January through June, said Mark LoPresti of Thomson Financial.

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. They still have not recovered, closing Thursday at $45.90.

Shares of HCA were up in Friday afternoon trading on the New York Stock Exchange.

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.

The sale of stock was first reported Monday by Congressional Quarterly. On Tuesday, The Associated Press reported that the stock was sold at or near its peak between June 13, when Frist asked that the shares to be sold, and July 1, when he was told the sale was complete. On July 8, Frist was informed that his wife and children's shares had also been sold per his request, spokeswoman Call said.

For years, Frist was criticized 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.

Senate ethics rules did allow Frist some control. Under the guidelines, senators can 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."

That is not how blind trusts normally work, Becker said. "It can be useful and it can be better for the public to make sure you empty the blind trust of the things you do know about and have it replaced with things you don't know about," Becker said.

Kathleen Clark, a law professor at Washington University in St. Louis who specializes in government ethics, said the Senate guidelines seemed to allow using a trust as a way to avoid having to publicly report the holdings.

"I think this raises the issue of, is that appropriate given that it's not really blind," she said.