September 27, 2005
Frist defends HCA stock sale as proper
By Kevin Drawbaugh and Jeremy Pelofsky
WASHINGTON (Reuters) - Senate Majority Leader Bill Frist on
Monday defended his recent sale of HCA Inc. stock and said he
initiated it months before the hospital company issued a profit
warning that drove down its stock price and led to a federal
probe of his actions.
The statement by the Tennessee Republican -- a potential
2008 presidential candidate -- came as Securities and Exchange
Commission Chairman Christopher Cox recused himself from the
probe because he is a former congressional colleague of Frist.
Frist said he sought legal advice in April and got approval
in mid-June from the Senate Ethics Committee to order the
trustees of the blind trust holding his HCA shares to sell
them. The sales were completed by July 8, days before HCA said
its operating profits would not meet Wall Street expectations.
"I had no information about HCA or its performance that was
not publicly available when I directed the trustees to sell the
stock," Frist said at a Capitol Hill news conference.
He added he would cooperate with investigations by both the
SEC and the U.S. Attorney for the Southern District of New York
and predicted that "an examination of the facts will
demonstrate that I acted properly."
SEC Chairman Cox recused himself on Monday from the
investor protection agency's probe of the stock sales. "Because
of my service in the congressional leadership for the last 10
years, I have recused myself in this matter," Cox said.
"The purpose of the recusal is to avoid any appearance of
impropriety in the commission's consideration of this case,"
said the former Republican congressman from California who took
the helm just last month at the investor protection agency.
The recusal was seen by legal experts as a politically
astute, if not legally necessary, move by Cox, whom President
George W. Bush chose this summer to be SEC chairman.
"I think it's mostly cosmetic and driven by the politics
... I don't know of any ethical standard that applies to the
SEC that would require it," said Stanley Brand, partner at the
law firm of Brand & Frulla and a former SEC staff attorney.
Cox's campaign committee donated $1,000 to Frist's 2000
re-election campaign, Federal Election Commission records
showed. Cox's statement made no mention of the 2000 donation.
A contribution of that size to a multimillion-dollar
campaign like Frist's probably would not require recusal, said
Georgetown University Law School Professor Roy Schotland.
But he praised Cox for avoiding any appearance of conflict.
"What he's done makes complete sense," Schotland said.
Frist's office said last week the SEC and prosecutors had
contacted him for information about his sales of stock in HCA,
a company co-founded by Frist's father and brother.
HCA said last week the U.S. Attorney for the Southern
District of New York had issued a subpoena to the company,
seeking information it believed was related to the stock sales,
and that the SEC sought the same information.
The SEC enforcement division staff routinely investigates
insider trading and other kinds of securities law cases.
If the staff decides that it wants to bring legal action in
a case, it seeks approval of the commission itself -- a
five-member panel of presidential appointees. The commission is
comprised of three Republicans and two Democrats.
Cox said his recusal covers any future deliberations or any
vote by the commission, as well as any investigative management
duties the SEC chairman might be called on to handle.
Shares in Nashville, Tennessee-based HCA closed down 36
cents on the New York Stock Exchange at $47.24 each.
(Additional reporting by Richard Cowan and Thomas Ferraro)