San Jose Mercury News (California)
WASHINGTON, D.C. — When Senate Majority Leader Bill Frist asked a trustee to sell all his stock in his family’s hospital corporation, a large-scale sell-off by HCA Inc. insiders was under way.
Shares of the Nashville, Tennessee-based hospital company were near a 52-week peak in June when Frist and HCA insiders were selling off their shares — just about a month before the price dropped.
Information about the insiders’ moves was publicly available through disclosures required by the Securities and Exchange Commission.
About 2.3 million shares, worth about $112 million, were sold by HCA insiders from January through June, with sales getting larger as the spring wore on, said Mark LoPresti of Thomson Financial. In May and June, 770,629 shares were sold for total gains of $42 million, he said.
The sales, which included moves by Hospital Corporation of America’s chief executive, treasurer, senior vice president for government programs and several directors, were among the largest insider selloffs analysts had seen, LoPresti said. Many officers made their largest trades ever in April, only to top them again in May and June, LoPresti said.
Meanwhile, HCA shares continued a steep climb that would ultimately take the price up 56 percent from October 2004 to July 2005, peaking in late June, LoPresti said.
But insider selling is sometimes seen a sign of looming trouble. Uninsured patient admissions were rising faster than those of insured patients, federal reimbursements were declining in real terms and payments did not keep up with cost increases. LoPresti himself discussed the insiders’ moves on an April 11 broadcast on the cable channel CNBC.
Shares of HCA peaked June 22 at $58.40 and then began a slide that would drop the stock almost 16 percent by mid-July. They have still not recovered, closing Thursday at $45.90.
On June 13, Frist asked his trustees to sell his HCA holdings, as well as those of his wife and children. Letters from his trustees on July 1 and July 8 confirmed the sales, said Frist spokeswoman Amy Call.
The value of his stock at the time of the sale was not disclosed. Earlier this year, he reported holding blind trusts valued at $7 million to $35 million.
Frist, a Tennessee Republican, widely considered a potential presidential candidate in 2008, ordered the stock sold to avoid the appearance of a conflict of interest, Call said. The senator declined to comment Thursday.
For years, Frist, a heart surgeon, was criticized for holding stock in the nation’s largest for-profit hospital chain while directing legislation on Medicare reform and patient issues. HCA was founded by his father, the late Thomas Frist Sr.; and his brother, Thomas Jr., is a director and leading stockholder.
His office has consistently deflected criticism by noting that his assets were in a blind trust and not under his active control.
The Senate Ethics Committee has cleared Frist several times to work on health care-related legislation, saying as recently as April 2004 that because neither he nor his family had a controlling interest in HCA, he could participate at his own discretion.
Under Senate ethics rules, senators can directly order the sale of any asset known to have been in the trust before the metaphorical curtain was drawn. The senator also can communicate in writing matters of concern, including “an interest in maximizing income or long-term capital gain.”
That is not how blind trusts normally work, said David Becker, who was general counsel at the SEC from 2000 to 2002. To avoid potential insider-trading conflicts, the beneficiary usually has no knowledge or participation in investment decisions.
If Frist was allowed to ask for stock to be sold, “the question here is, How blind is blind?” Becker said.
The trustee of Frist’s personal holdings, Kirk Scobey Jr., declined to comment except to say that, in general, the owner of a trust “can direct the elimination of a holding he or she originally contributed to the trust.” Scobey is president of Nashville-based Equitable Trust Co.
The Foundation for Taxpayer and Consumer Rights, a California-based group, called for the SEC to investigate the majority leader’s financial relationship with his brother. The group, which has wrangled with Frist over medical malpractice, has long called for Frist to divest himself of the HCA stock and for an inquiry to the ethics committee.
“If there was any sort of insider information that caused Frist to use ethical considerations as a cover, we think the SEC needs to investigate,” said Carmen Balber, the group’s consumer advocate.
Associated Press writer Marcy Gordon in Washington contributed to this report.