Frist Sale of Stock
Spurs Inquiries
Into Trusts
By DAVID D.
KIRKPATRICK, NYTimes on the Web, September 25, 2005
WASHINGTON, Sept. 23 --
Senator Bill Frist's sale of stock in his family's hospital company has not only
prompted an inquiry into the sale itself but has also raised questions about the
blind trusts in which his most recent financial disclosures show he holds assets
valued at $7 million to $35 million.
On Friday, the company, HCA Inc., and a spokesman for Mr. Frist said federal
prosecutors and the Securities and Exchange Commission had begun investigating
the circumstances surrounding Mr. Frist's June sale of his remaining stake in
HCA. The sale occurred just as the company's share price was reaching a
new peak and about to take a steep tumble.
A spokesman for Mr. Frist, the Senate majority leader and brother of an HCA
chairman emeritus, repeated Friday that the senator ordered the sale to dispel
persistent accusations that his holdings created a conflict of interest because
of his involvement in shaping health care policy. The spokesman, Bob
Stevenson, said Mr. Frist's staff had cleared the order to sell the shares with
the Senate Ethics Committee in advance.
A Frist aide disclosed the sale to Congressional Quarterly on Monday.
Mr. Frist's decision to sell represented a departure from his previous position
that his lack of control over the blind trusts that held his assets almost
eliminated any conflict of interest. The Frist transaction also followed
several months of heavy selling by many top executives inside the company as the
stock reached its new peak, raising questions about whether Mr. Frist was
following their lead.
"Right now, I don't know if I own HCA because it's a qualified blind trust," Mr.
Frist told The National Journal two years ago.
Mr. Frist, a potential 2008 presidential candidate, set up the trusts more than
a decade ago and restructured them again in 2000 with the help of lawyers for
his prominent Nashville family. The largest share of his assets are
managed by Kirk Scobey Jr., president of the Equitable Trust Company of
Tennessee, one of a handful of elite money managers in the city. Northern
Trust, based in Chicago, manages other trusts for Mr. Frist's wife and children,
all of which divested of HCA shares at once.
Senate ethics rules and federal ethics laws allow members to own stocks and
other assets directly, without putting them in trusts. Provisions in the
ethics laws, however, allow government officials to create "qualified blind
trusts." In such trusts, according to the rules, an appointed trustee
manages the fund and communications with the official are strictly limited.
Such arrangements are intended to minimize allegations of conflict of interest.
The law explicitly allows the official who created the trust to give "directions
to the trustee to sell all of an asset initially placed in the trust" if the
official determines that holding on to the asset creates the appearance of a
conflict of interest, according to the Senate ethics manual. The rules
also require the trustee to tell the official if all of one of the original
assets is sold.
A spokesman for Mr. Frist said that, after consulting with the Senate Ethics
Committee, the senator took advantage of those provisions of the rules to order
the sale. But there were good reasons to sell regardless of the potential
conflict of interest.
In the first seven months of the year, 25 senior executives sold $166.4 million
in shares of HCA stock, with the biggest sales in February and April. In
June and July, when Mr. Frist divested his shares, seven executives sold shares
worth $19.4 million. Among them were several directors, top executives of
some company divisions, and Richard M. Bracken, president of HCA, who sold
shares worth $8.2 million.
On Friday, Democrats seized on the investigations to criticize the Senate
majority leader. Howard Dean, chairman of the Democratic National
Committee, charged that "Bill Frist spends most of his time looking out for his
own financial interests and for Republican big business cronies."
A spokesman for Mr. Frist said the senator began receiving inquiries from
securities regulators and federal prosecutors in New York on Thursday.
HCA said it received a subpoena late Thursday afternoon from the New York
prosecutor's office and calls from the S.E.C. on Friday; the spokesman for Mr.
Frist said his office had not been served. The S.E.C. and the United
States attorney's office declined to comment.
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