Frist: HCA Stock Sale Was Proper
Senate Majority Leader Bill Frist (R-Tenn.) defended his personal financial investments Monday, saying his family’s blind trusts behaved “above and beyond anything” required by the chamber’s ethics rules or federal laws.
Moving to quell growing questions about how much he knew about the sale of HCA Inc. stock over the summer, before the price dropped nearly 10 percent, Frist suggested publicly for the first time that the sales were motivated in part by his presidential ambitions.
The Senator said that after a dozen years of questions about his holdings in his family’s hospital chain, he decided that his final 15 months in the chamber and “what might come next” would be best served if he completely sold off his stake in the company.
“The complaints and the questions have persisted,” Frist said as he delivered a carefully worded statement. He had personally underlined portions of the statement in red pen.
Critics have long charged that Frist has never been forthcoming about how much stock he held in HCA. With the emergence of the stock-sale controversy, they are now questioning the efficacy of how “blind” his trusts were.
The critics have also pointed to several Frist statements in recent years in which he claimed to have no idea whether he was holding any HCA stock, because the rules of the blind trust kept him from knowing what transactions were taking place. In addition, Frist’s brother, Thomas Frist Jr. — who is still a member of HCA’s board — told The Wall Street Journal earlier this year that he didn’t think the Senator had any holdings left in HCA.
The Senator has at least three blind trusts in his name and another seven under the name of his wife, Karen Frist, and their three sons. Each received official approval from the Senate Ethics Committee on Dec. 28, 2000.
After forming the trusts, however, Frist was notified of more than $1 million worth of additional HCA stock contributions to the family trusts in 2001 and 2002, according to a Roll Call review of Senate records. One of the trusts under the Senator’s name sold off all its HCA stock — 14,781 shares — by Nov. 20, 2002, according to Senate records. In 2002, the HCA price peaked at $52 a share in June and settled around $40 in November.
But Frist never received another letter from his trustee notifying him that HCA shares had been completely sold off in the other two trusts under his name, which, under the rules of the trust, it would have been required to do as soon as less than $1,000 in share value remained in a trust. In addition, the other seven trusts in his wife’s and sons’ names did not officially dispose of all HCA holdings until July 8, 2005, according to Senate records. So Frist should have known over the past five years that he was holding HCA stock in his blind trusts.
Frist said that selling off all his immediate family’s holdings in HCA “would eliminate even the possibility of the appearance” of a conflict in his final 15 months in office and his potential presidential campaign in 2007 and 2008.
In fact, the opposite happened. Those sales — which have been on public record in the Hart Senate Office Building since July 14 but came to light only after press reports last week — have prompted investigations by the Securities and Exchange Commission as well as the U.S. attorney for the Southern District of New York. The investigators are examining whether Frist was aware in advance of a poor HCA quarterly earnings report released in early July, since his sales were completed after he instructed the trustee of his funds to make the sales on June 13.
Frist said he would comply fully with the federal investigations, proclaiming that they would prove his innocence and ultimately clear up any remaining questions.
“I am being asked to explain this decision. I understand that, and I welcome it,” he said Monday. Frist took no questions from reporters at the hastily arranged media availability in the Capitol Crypt, then exited into an elevator that took him directly to the secure fourth floor conference room for an intelligence briefing with CIA Director Porter Goss.
Frist said he made the decision to try to sell off the HCA holdings in April, when he convened a meeting of his staff to begin a review of whether he could sell off all the holdings. Frist said he soon discovered that Senate rules allowed him to instruct the director of his trusts to sell off the stocks to further eliminate any possible conflict of interest, a process that his staff worked on with counsel at the Ethics Committee.
If that timeline is accurate, it could be helpful to Frist because it’s unclear whether HCA executives could have been aware in April of a poor earnings report that wasn’t coming out until July.
“My only objective in selling the stock was to eliminate the appearance of a conflict of interest. I had no information about HCA or its performance that was not publicly available,” Frist said.
Frist, however, is still bound to face questions about the accuracy of his past statements about his holdings, particularly at times when he was shepherding health-care legislation through the chamber.
It is not clear from Senate records precisely how much HCA stock was placed into the various Frist family trusts in late 2000, but records show that Frist has been alerted to at least $2 million worth of additional transfers into the blind trusts from companies founded or directed by Frist family members.
The contributions to the trusts were made on at least seven different occasions, with about half the value going toward holdings in the well-known HCA but nearly $1 million more went into two lesser-known Frist family companies: American Retirement Corp., a seniors’ living community company that was also co-founded by Frist’s late father, Thomas Frist Sr.; and HealthStream Corp., which is run by Robert Frist Jr., a cousin of the Majority Leader.
Because the value listed on the Senate forms provides for a wide range, the actual value of the assets contributed to the funds might have been as high as $3.9 million. It’s unclear how much of the family company assets make up the overall value of the Senator’s wealth.
The total value of the blind trusts in Frist’s name ranged from $7 million to $35 million, according to a financial disclosure form ending Dec. 31, 2004.
These additions to the trusts in 2001, 2002 and 2003 were made in accordance with Senate ethics rules, said a source close to Frist who requested anonymity. The new money coming into the trusts were likely donations from the estate of Thomas Frist Sr., as well as partnerships formed under the family name, the source said.
These were not transactions that occurred with existing funds in the trust; that would have been a violation of the chamber’s rules. “What the Member’s not supposed to know is what transactions take place,” the source said.
And the notification given to Frist about these contributions to the trust — as well as the notifications of sell-offs of other holdings — appear to comply with Senate rules on blind trusts. Any time new contributions are made into a blind trust, the Senator is to be notified by his trustee, as is the Ethics Committee.
And, when an asset is completely sold off or drops to below $1,000 in value, the Senator and the Ethics Committee are to be notified.
Other than that, no communications about specific assets are allowed between the Senator and the trustee.
As he walked away from the bank of microphones Monday, Frist was asked whether he had been accurate when he made statements in 2003 that he didn’t know if held any HCA stock. But the Majority Leader declined to comment and headed into the elevator.