Securities and Exchange Commission Chairman Christopher Cox recused himself today from the agency's investigation of stock sales by Senate Majority Leader Bill Frist (R-Tenn.) to avert what he called "any appearance of impropriety."
Cox, a former California lawmaker who served for nearly a decade as a member of the House Republican leadership before joining the agency last month, cited personal connections to Frist in a prepared statement explaining his decision to step aside from deliberations about the probe.
Cox had donated $1,000 to Frist's reelection bid in 2000 through his own campaign fund, according to records compiled by the Federal Election Commission.
The recusal means that Cox will be barred from briefings about the substance of the SEC staff's investigation. Instead, the agency's four other commissioners, evenly split between Democrats and Republicans, ultimately would vote on whether to accept or reject the enforcement unit's recommendation on whether to bring a case.
Frist and Nashville, Tenn.-based HCA Inc. disclosed last week that they had been contacted by the SEC and the U.S. attorney for the Southern District of New York about the senator's decision to sell stock in the nation's largest hospital chain. The sale occurred in advance of a warning that the earnings had weakened. Frist held the stock in a blind trust, whose holdings have been valued at between $7 million and $25 million, according to his financial disclosure statement earlier this year.
Frist has denied wrongdoing in connection with the stock sales. Both he and HCA, which was founded in 1968 by his father and brother, have said they are cooperating with the investigation.
In a statement last week, Frist's office said he had "no information about the company or its performance not available to the public when he directed the trustees to sell the HCA stock."
Selling stock based on inside information violates securities laws.
Megan Gaffney, a spokeswoman for U.S. Attorney Michael J. Garcia, said as a matter of policy the government would not confirm or deny it was investigating the Frist stock sales. SEC spokesman John Nester also declined comment.
Steven R. Peikin, a former federal prosecutor in the securities fraud unit in Manhattan, said it was "somewhat unusual" for criminal authorities to surface so early in an insider trading investigation.
Typically, Peikin said, prosecutors prefer to sit back and watch as witnesses provide testimony under oath in SEC proceedings before signaling their interest in a case.
"Here, I speculate what's at work is the Southern District of New York . . . marking out their territory" to avoid a possible turf battle down the road with other U.S. attorney offices, he said.