Letters Show Frist Notified Of Stocks in 'Blind' Trusts
Monday, October 24, 2005
Senate Majority Leader Bill Frist (R-Tenn.) was given considerable information about his stake in his family's hospital company, according to records that are at odds with his past statements that he did not know what was in his stock holdings.
Managers of the trusts that Frist once described as "totally blind," regularly informed him when they added new shares of HCA Inc. or other assets to his holdings, according to the documents.
Since 2001, the trustees have written to Frist and the Senate 15 times detailing the sale of assets from or the contribution of assets to trusts of Frist and his family. The letters included notice of the addition of HCA shares worth $500,000 to $1 million in 2001 and HCA stock worth $750,000 to $1.5 million in 2002. The trust agreements require the trustees to inform Frist and the Senate whenever assets are added or sold.
The letters seem to undermine one of the major arguments the senator has used throughout his political career to rebut criticism of his ownership in HCA: that the stock was held in blind trusts beyond his control and that he had little idea of the extent of those holdings.
The extent of Frist's knowledge of the inner workings of his trusts and his family's health care company is related to a recently launched federal investigation of possible insider trading involving the liquidation this summer of Frist's HCA stock. Within weeks of Frist's decision to sell his holdings in June, HCA shares fell sharply because of a weak earnings report. Frist has said he possessed only publicly available and not "insider" information about the company when he directed the sale and, therefore, did nothing wrong.
Last week, Frist told reporters that he is "absolutely confident in the outcome" of the inquiries by the Justice Department and the Securities and Exchange Commission because he "acted properly at every point." He declined to address specifics about the investigations but said he is providing information as quickly and fully as possible.
Frist, a heart-surgeon-turned-politician, has been actively involved in shaping national health care legislation, including passage of the Medicare prescription drug benefit, while maintaining a major financial interest in his family-founded health care business.
Two watchdog organizations -- Citizens for Responsibility and Ethics in Washington and the Foundation for Taxpayer and Consumer Rights -- filed complaints with the Senate Select Committee on Ethics this yearcharging Frist with having a conflict of interest and questioning why he sold his shares after a decade of saying he did not need to.
Frist and his family have a dozen federal trust accounts, which are essentially piles of stock controlled by professional money managers. Under the terms of his "qualified" trust agreements set up in 2000, Frist is barred from contacting the managers except under specific circumstances. The managers, however, are required to contact him when the funds they control undergo certain changes -- an arrangement similar to those of several other senators.
In January 2003, after winning election as majority leader, Frist was asked on CNBC whether his HCA holdings made it difficult for him to push for changes in Medicare, a federal health program for seniors that added to the hospital company's revenue.
"I think really for our viewers it should be understood that I put this into a blind trust," Frist replied. "So as far as I know, I own no HCA stock." He added that the trust was "totally blind. I have no control."
Two weeks before that interview, M. Kirk Scobey Jr., a Frist trustee, informed the senator in writing that one of his trusts had received HCA stock valued at between $15,000 and $50,000.
"He [Frist] could have been more exact in his comments," said Bob Stevenson, spokesman for Frist. Stevenson added that Frist might better have said he did not know to what extent he owned HCA shares.
Kathleen Clark, a law professor at Washington University in St. Louis, said she was surprised that Frist had ever claimed before this summer's liquidation that he might have owned no HCA stock. "Did he say that? What was he thinking of?" she asked. "How did he know to tell the trustee to sell it [his HCA stake] if he didn't know that he had it in the first place?"
Disclosures by the trustees to the Senate and to Frist indicate that Frist and his family probably owned a great deal of HCA stock at the time. When Frist's federal trusts were created in late 2000, the trustees disclosed that one trust alone contained between $5 million and $25 million in HCA shares and that each of seven other trusts held more than $1 million of the stock.
Frist was notified in November 2002 that 14,781 HCA shares had been sold from one of his trusts. But he was not told that all of his HCA shares had been disposed of until this summer -- after he had directed his trustees to sell them all, the documents show.
Questions about his HCA holdings have been a staple of Frist's public life. The Nashville-based company, the country's largest chain of for-profit hospitals, was founded in 1968 by Frist's father, Thomas F. Frist, his brother, Thomas F. Frist Jr., and Jack C. Massey, the former owner of Kentucky Fried Chicken. Its stock made up the majority of Frist's wealth and was used to help him secure some of the financing for his first Senate campaign.
During his first run for the Senate in 1994, Frist was accused of having a "mammoth conflict of interest" by his Democratic opponent, then-Sen. Jim Sasser. Frist promised to put his HCA stock in a blind trust to avoid the problem.
This year, as he contemplated a bid for the White House in 2008 and worried about the appearance of conflicts, Frist abruptly changed tactics, aides said. Rather than defend his stock held in trust, he asked his trustees to sell all his HCA shares.
Stevenson said Frist's concerns involved the perception of a conflict rather than any real conflict of interest. In 1997 and 1999, the ethics committee cleared Frist to participate in Senate debates involving Medicare and health maintenance organizations despite his "substantial" holdings in HCA. The committee did not take into account whether Frist's holdings were in blind trusts in reaching its decisions.
Frist said last week he was not required to set up a blind trust after he went to the Senate, but he wanted to "apply the highest ethical standards I possibly could. I thought, why not raise the bar, why not do a good deed . . . and avoid any appearance of a conflict of interest."
Senate rules prohibit any lawmaker with a blind trust from contacting his trustees unless the ownership of an asset poses a potential conflict of interest "due to the subsequent assumption of duties" by the lawmaker. The lawmaker can then ask the trustees to dispose of the asset.
Frist did not take on any new duties this year. But a Frist adviser said the senator had been thinking about selling his HCA stake from the time he was elected majority leader in 2002. Frist had not known that he could sell his shares until this spring, the adviser asserted, and so went ahead with the sale based on his nearly three-year-old wish.
Staff writer Charles Babington and research editor Lucy Shackelford contributed to this report.