Blind Trusts Get New Look After Sale by Frist

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The New York Times

WASHINGTON, D.C. — Federal investigations into a stock sale by Senator Bill Frist are calling new attention to the blind trusts that he and many other government officials use to deal with potential conflicts of interest.

Federal ethics laws make it virtually impossible for members of Congress or top White House officials to set up trusts fully beyond their knowledge or control. While officials may choose to set up a conventional blind trust under the control of an independent administrator, ethics laws require the annual public disclosure of its contents.

So the laws provide for the creation of special ”qualified blind trusts” like Mr. Frist’s that are exempt from public disclosure. The laws strictly limit communications between the trustee and the beneficiary, but they also mandate disclosure of the original holdings and notification to the beneficiary whenever an original asset is sold.

And the rules give beneficiaries like Mr. Frist, Republican of Tennessee and the Senate majority leader, the power to order the sale of all of a stock or other asset at any time in the name of eliminating a potential conflict.

”That doesn’t really sound very ‘blind,’ does it?” asked Celia Viggo-Wexler, vice president for advocacy of the group Common Cause.

The ethics laws that set rules for such qualified blind trusts apply to White House officials as well as members of Congress, but the trusts have become especially popular among the growing number of millionaires in the United States Senate (at least 45, according to the last count by the Capitol Hill newspaper Roll Call).

In addition to Mr. Frist, other senators with blind trusts of one kind or the other include the Democratic Senators Jon Corzine of New Jersey, Hillary Rodham Clinton of New York, Barbara Boxer of California, Herb Kohl of Wisconsin, John D. Rockefeller IV of West Virginia and Edward M. Kennedy of Massachusetts as well as the Republican Senators Lincoln Chafee of Rhode Island and Michael B. Enzi of Wyoming.

Elected officials cite their creation of blind trusts as insulation against conflicts of interest. When asked about the influence of his multimillion-dollar stake in HCA, the hospital company his family founded, Mr. Frist often said his blind trust kept him ignorant of how many shares he owned. Occasionally, he even said, ”I don’t know if I own HCA,” as he told The National Journal in an interview two years ago.

Though choosing to create a blind trust might help candidates politically, ethics rules do not require one. Many other government officials and members of Congress own or even trade stocks directly.

In the highly regulated health care industry, for example, 32 senators have disclosed stakes in pharmaceutical or medical device companies, 24 in companies that sell malpractice insurance and 27 in hospital companies or health care providers, according to a recent survey by the Foundation for Taxpayer and Consumer Rights.

In the case of Mr. Frist, the federal investigations center on the timing of his decision to sell his HCA stake in June, just as the shares hit a new peak and right before the company announced disappointing earnings that caused a sell-off. At issue is whether Mr. Frist, whose brother is the company’s chairman emeritus, received nonpublic information before ordering the sale.

A spokesman for Mr. Frist has said he had no such information. The spokesman, Bob Stevenson, said Mr. Frist ordered the sale to minimize accusations that the shares created a potential conflict of interest, the same reason he created the blind trusts in the first place.

The resulting attention, however, has brought into new focus how much Mr. Frist knew about the trust. Public filings made to the Senate ethics committee show several letters from his main trustee, M. Kirk Scobey Jr., president of the Equitable Trust Company in Nashville, informing Mr. Frist that certain assets had been sold or, in at least one case in 2002, that shares of HCA had been added. (An aide to Mr. Frist said he had inherited them and transferred them into his existing trust.)

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif., said members of Congress should either divest their holdings in an industry or recuse themselves for legislation affecting it. With blind trusts, he said, ”Senators have wanted to have it both ways.”

When the foundation complained to the Senate Ethics Committee last year about Mr. Frist’s stake in HCA, the committee responded by citing Senate ethics guidelines: ”Votes cast by senators and congressmen are predicated on their perceptions of the public interest and the public good, not on personal pecuniary interests.”

Consumer Watchdog
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