Frist Sale of Stock Launched in April

By Carrie Johnson
Washington Post Staff Writer
Saturday, October 1, 2005

Private e-mail between Senate Majority Leader Bill Frist (R-Tenn.) and his advisers reflects that Frist began discussing the sale of his HCA Inc. stock in April, months before it became clear that the hospital firm's shares would decline in value, according to documents reviewed by The Washington Post.

An April 29 message from G. Allen Hicks, chief counsel to the majority leader, informs the senator that they can discuss his "blind trust question sometime today." Frist also exchanged e-mail with his accountant, Deborah Kolarich, in Nashville, the same day in what he called an effort to "dispose of all hospital stocks in all accounts that I have control of."

The documents, provided by sources sympathetic to Frist, make up only part of the record under review by investigators at the Securities and Exchange Commission and the U.S. attorney for the Southern District of New York, which are scrutinizing whether the stock sales violated insider trading laws.

Frist advised his brother, HCA board member and former chairman Thomas Frist Jr., of his decision to unload the shares in late April, weeks before the lawmaker told an official who controlled his blind trust about the decision, according to sources who spoke on the condition of anonymity because of the investigation. It remains unclear whether the disclosure that Frist conferred with his brother, who helped found the Nashville company in 1968, will attract more government scrutiny.

The trustees who controlled Frist's HCA stock sold the shares by July 8, days before the company reported weaker-than-expected earnings that drove down the stock price 9 percent in a day.

The Frist case underscores the burden government lawyers face when investigating insider trading cases, which generally center on the painstaking accumulation of circumstantial evidence.

"Insider trading is one of the most difficult kinds of white-collar cases for prosecutors to investigate and prove," said former assistant U.S. attorney Michael S. Schachter, a Willkie Farr & Gallagher lawyer who helped prosecute Samuel D. Waksal, a friend of Martha Stewart's, for insider trading.

The cases are particularly difficult for the government because lawyers need to prove what targets of the investigation knew and how they learned it. Investigators have issued subpoenas for telephone records, calendar entries and other material that will help reconstruct events leading up to Frist's sales.

The key question, said Duke University law professor James D. Cox, is "What was happening in Bill Frist's life in the days, perhaps hours, before the stock was sold?"

Lawyers for Frist and HCA have said they are cooperating with the investigation but declined to comment further, as did trustees in Chicago and Nashville who executed the sales on behalf of blind trusts for Frist, his wife and his children.

In a news conference Monday, Frist said he had put the process of selling the stock into motion more than five months ago. Documents reviewed by a reporter yesterday flesh out the lawmaker's account, suggesting that the process dragged on for weeks as his lawyers delivered draft correspondence seeking approval from the Senate Ethics Committee on May 20. Frist eventually sent letters directing Equitable Trust Co. and Northern Trust Corp. to sell the stock June 13.

At the time Frist said he began considering a sale, in April, 14 insiders at the Nashville hospital chain moved to sell 933,760 shares worth more than $28.7 million, according to an analysis this week by data company Thomson Research. Frist's brother has not sold shares this year. If Frist relied on the insider sales as a signal to sell, then he would not have broken the law because those sales were reported to the SEC and the public, said Gary M. Brown, a corporate lawyer at the Baker Donelson law firm in Nashville.

Analysts said Frist nonetheless may have a difficult time explaining to the SEC, which investigates insider trading, why he moved to sell when he did. He held the stocks in trust for years and repeatedly denied they constituted a conflict of interest. He also denied knowing about the composition of the trust despite receiving letters from his trustee about the stocks. In a 2003 interview, Frist told reporters that "so far as I know, I own no HCA stock." In his statement Monday, Frist hinted that his likely 2008 presidential bid spurred him to sell the HCA shares.

The Frist case is drawing substantial legal firepower. Frist has hired former SEC enforcement officials William R. McLucas and Harry J. Weiss. HCA has enlisted former Manhattan U.S. attorney Mary Jo White. Thomas Frist has hired New York lawyer Gary P. Naftalis, who has represented Global Crossing Ltd. founder and campaign donor Gary Winnick, among others.

The SEC's new chairman, former congressman Christopher Cox (R-Calif.), removed himself from the probe this week, citing personal ties to Frist. That means the decision about whether to bring a case against Frist rests with the agency's two Democratic commissioners and two Republican commissioners.

In the event of a tie vote, a staff recommendation to file a civil complaint of insider trading against Frist would fail, experts said.

© 2005 The Washington Post Company