While insiders at HCA Inc. were selling millions of dollars of their own stock this year, they were also painting a sunny picture of the company's outlook for investors.

Federal prosecutors and the Securities and Exchange Commission are investigating the sale of HCA stock by Senate Majority Leader Bill Frist (search), R-Tenn., whose family founded the company that grew into the nation's largest for-profit health care chain.

The SEC turned its initial inquiry into a formal investigation of the company, HCA announced Thursday. The company said it is cooperating with investigators.

Frist's office said Wednesday that he had gotten notice of a formal investigation, which grants subpoena powers to investigators to obtain information and documents.

On June 14, the day after Frist ordered his shares sold, HCA officers at a Goldman Sachs health care conference in Laguna Niguel, Calif., spoke optimistically about the company's prospects.

Victor Campbell (search), HCA's senior vice president of corporate communications and government relations, soothed investor concerns about unpaid patient debts and worries about patient volumes. He also advocated for a still-pending Senate bill that would limit the establishment of physician-owned specialty hospitals and called Washington "my favorite place ... where I spend at least a day or two a week."

In the month before the speech, Campbell sold about $12 million worth of stock. It was part of a massive insider sell-off at HCA that totaled some $112 million between January and June 2005.

Those sales were disclosed publicly through filings with the SEC.

HCA shares peaked about a week later, closing at $58.40 on June 22. On July 13, they tumbled 9 percent following the company's announcement that it would not meet earnings expectations.

Citigroup said the drop was "a clear disappointment versus recently heightened investor expectations."

In his remarks, Campbell did not speculate about the company's earnings, but spoke of a number of positive trends for the company. The only expense line the company didn't like, he told investors, was the issue of money lost from treating uninsured patients who never paid. But he said that was improving: "We've had a couple of quarters now ... where the trend lines have looked better. We hope that will continue. We're not predicting." He did forecast that outpatient volumes would continue to grow.

Campbell highlighted HCA's buyback of stock in late 2004 but did not mention the insider sell-off then nearing completion. The company had borrowed the full amount it needed for a $2.5 billion buyback, which spurred credit-rating agency Standard & Poor's to downgrade its debt rating to junk, a move which coincided with the start of the stock's ascent to its June 22 peak.

"We look smarter than we probably really are, but it was good timing," Campbell told investors.

The speech helped feed optimism surrounding HCA stock, said Oksanna Butler, a senior health care industry analyst with Citigroup Investment Research.

"I talked to investors that had been at that conference and what I hear was that they were coming away with a positive view," Butler said.

In April, analysts with Oppenheimer & Co. cited the increasing volume and improving prospects of unpaid patient debt and rated the stock a "buy," calling its raised earnings expectations "conservative." Analysts at Morgan Stanley and Jeffries & Co. Inc. gave similar advice the next day. On May 5, Morgan Stanley analysts reported that HCA executives led an "upbeat" and confident discussion of the hospital company's prospects at a conference on health care issues.

Campbell did not respond to a request for comment Wednesday. HCA spokesman Jeff Prescott declined comment, saying, "I'll let what he said at the conference speak for itself."

"The mere fact that someone says, 'we're optimistic' and then a month later the stock price goes down doesn't mean that people have tried to mislead anybody else," said David Becker, a former general counsel at the SEC. "If you purport to tell people what you know about the future but you mislead them by leaving important things out, that can well be the sin of omission. But you have to look at what, precisely, people say and what, precisely, is left out."

Frist's staff discussed selling all remaining HCA stock in April, as well as that of his wife and children, Frist said. The sales, ordered on June 13, were completed by July 1.

Frist said he sold the shares to eliminate the appearance of a conflict of interest, using only information that was publicly available.

HCA shares were down 40 cents to $47.55 in early trading Thursday on the New York Stock Exchange.