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Frist Says He Had No Inside Data On Stock
Senator Calls Sale An Effort to Avoid Conflict of Interest

By Charles Babington and Carrie Johnson
Washington Post Staff Writers
Tuesday, September 27, 2005

Senate Majority Leader Bill Frist, facing federal inquiries into his sale of hospital company stock, said yesterday that he had no inside information about the stock's likely performance and sold the shares solely to avoid a possible conflict of interest in case he seeks higher office.

Frist (R-Tenn.), who is weighing a 2008 presidential bid, said he began taking steps to sell all the stock held in a trust about three months before its value sharply fell. The Justice Department and the Securities and Exchange Commission are looking into his June sale of all his holdings in HCA Inc., a Nashville-based company that his family founded. The next month, the stock's value dropped 9 percent after the company issued a disappointing earnings forecast.

Frist, a wealthy surgeon, briefly addressed reporters in the Capitol but took no questions in making his first public comments since the inquiries were announced late last week. Rejecting the notion that he may have benefited from inside information, he said: "I had no information about HCA or its performance that was not publicly available when I directed the trustees to sell the stock."

He noted that for years he repeatedly had said his ownership of HCA stock posed no conflict of interest for his Senate duties. Those statements frequently angered some consumer and victims' rights groups because of the large amount of health care legislation before the Senate, including the Medicare prescription drug plan.

"The complaints and questions have persisted," Frist said yesterday. "Because of these continuing questions, and looking ahead at my final years in the Senate and what might come next, I have for some time wanted to eliminate even the possibility of an appearance of a conflict by totally divesting of any HCA stock in my family's trust."

Frist's effort to tamp down criticism of his stock transactions came as SEC Chairman Christopher Cox removed himself from the agency's investigation, saying he wanted to avert "any appearance of impropriety." Cox, a California Republican who served for nearly a decade as part of the House's GOP leadership team before joining the SEC last month, cited personal connections to Frist in a prepared statement. Through his congressional campaign fund, Cox donated $1,000 to Frist's reelection bid in 2000, according to PoliticalMoneyLine, a research organization.

The recusal means that Cox will be barred from briefings about the substance of the SEC staff's investigation. The agency's four other commissioners -- two Democrats, two Republicans -- ultimately would vote on whether to accept or reject the enforcement unit's recommendation on whether to bring a case.

Frist held HCA stock in several blind trusts, whose holdings have been valued at between $7 million and $25 million, according to a financial disclosure statement filed earlier this year. The company was founded in 1968 by his father and his brother, Thomas Frist Jr., a former company chairman who remains on its board.

Copies of Frist's blind-trust agreements, established in 1999 and filed with the Senate ethics committee, indicate they were modeled on examples published on the committee Web site. The Senate Ethics Manual allows a lawmaker to direct his trustees to sell all of a given asset to avoid the appearance of a conflict of interest due to the senator's "assumption of duties" after the trust was established.

Frist was elected to the Senate in 1994 and became majority leader in December 2002. Frist, who plans to leave the Senate at the end of next year, did not suggest yesterday that he has taken on new duties, but he alluded indirectly to his possible presidential bid.

Frist said yesterday that he began taking steps to unload his HCA stock five months ago: "In April, I asked my staff to determine if Senate rules and relevant laws would allow me to direct the trustees to sell any remaining HCA stock. In May, my staff worked with outside counsel and with the Senate ethics committee staff to draft a written communication to the trustees. After obtaining pre-approval by mid-June from the Senate ethics committee, I issued a letter directing my trustees to sell any remaining HCA stock in my family's trust."

Frist has maintained there was no conflict in part because he was never sure of the precise holdings in the trust on any given day. In a January 2003 interview, Frist said: "As far as I know, I own no HCA stock . . . It is illegal right now for me to know what the composition of those trusts are. So I have no idea."

But documents that he and trustees submitted to the Senate indicate Frist had a general knowledge of his trust holdings -- including HCA and several other health organizations.

A trust agreement made in December 2000 states that he recognizes the assets in the trust "are concentrated in the stock of HCA." It released the trustee from "any obligation . . . to diversify the investments." That same month, trustees informed Frist that he and his family owned at least $11.35 million in HCA stock.

Frist was also informed by one of his trustees in 2001 that HCA stock having a total value of $350,000 to $750,000 was added to one of his trusts, and in early 2002 that additional HCA stock valued as $5,000 to $10,000 was added to a trust for one of his children. In May and December 2002, he was informed that HCA stock valued between $515,000 and $1.05 million was added to his main blind trust.

When one of his trustees notified Frist on July 8 that all of his HCA stock had been dumped, the trustee listed previous HCA holdings in seven trust accounts.

Frist has held stock in other health care firms, according to periodic letters sent to him by the trustees and filed with the Senate committee. Since 2001, his trustee has been selling shares in two other hospital chains -- Texas-based Triad Hospitals and Tennessee-based LifePoint Hospitals Inc. -- and keeping Frist informed. Frist also was told in a 2002 letter about the sale of shares in MedQuist Inc., a medical data transcription firm, and in a 2003 letter about the sale of shares in HealthStream Inc., a medical education firm.

Citizens for Responsibility and Ethics in Washington, a nonpartisan watchdog group, has called for the Senate ethics committee to investigate the majority leader's stock sales. Frist has hired as his lawyers former SEC enforcement official William R. McLucas and his law firm partner, Harry J. Weiss.

Staff writers R. Jeffrey Smith, Jeffrey H. Birnbaum and Shailagh Murray and research editor Lucy Shackelford contributed to this report.

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