Guess who’s under investigation by the Securities and Exchange Commission?
The Securities and Exchange Commission is investigating stock sales made by Senate Majority Leader Bill Frist in HCA Inc. shortly before the Nashville, Tenn.-based company warned it wouldn’t meet its previous second-quarter earnings forecast.
Mr. Frist, a Tennessee Republican and a potential presidential candidate in 2008, sold all his stock in HCA about two weeks before the company’s share price plunged. News of the stock sales surfaced in news reports earlier this week. The company was founded as Hospital Corp. of America in 1968 by Mr. Frist’s father, Thomas Frist, his older brother Thomas Frist Jr., and Jack Massey, who had made millions as the owner of Kentucky Fried Chicken.
The SEC is looking into whether Mr. Frist had any inside knowledge of problems at the company that prompted his sales, according to a person with knowledge of the matter. The investigation is expected to expand to other individuals who also sold HCA shares prior to its earnings warning, this person said.
In fact, as of this morning, HCA officials say that federal prosecutors have been by with a subpoena for documents the company believes may be related to Frist’s stock sale. (thanks to Gridlock for the tip)
Before anyone starts imagining Frist getting frog-marched out of the Hart Senate Office Building, it’s important to remember that these SEC investigations are rather routine. Anytime someone starts selling a bunch of stock right before an earnings report is filed, the SEC’s attention is piqued.
Still, the details here do not tilt in Frist’s favor. He still hasn’t crafted anything resembling a reasonable explanation for the sale. Indeed, Frist spokesman Bob Stevenson said yesterday that Frist’s “only objective in selling the stock was to eliminate the appearance of a conflict of interest,” which as we’ve noted for days, still doesn’t make any sense.
Perhaps most importantly is the speed with which this investigation has taken root. The WaPo notes the suspicious sale on Wednesday; the SEC contacts Frist directly on Thursday; and by Friday morning, investigators are at HCA’s doorstep, with subpoena in hand.
It’s unclear exactly how much money Frist made off the stock sale, but for his sake, I hope it’s a lot. Good criminal defense attorneys are expensive.