SEC Issues Subpoena To Frist
Wasington Post
By Carrie Johnson and Jeffrey H. Birnbaum
Washington Post Staff Writers
Thursday, October 13, 2005; A01
Senate Majority Leader Bill Frist (R-Tenn.) has been subpoenaed to turn over
personal records and documents as federal authorities step up a probe of his
July sales of HCA Inc. stock, according to sources familiar with the
investigation.
The Securities and Exchange Commission issued the subpoena within the past
two weeks, after initial reports that Frist, the Senate's top Republican
official, was under scrutiny by the agency and the Justice Department for
possible violations of insider trading laws.
Frist aides previously said he had been contacted by regulators but did not
mention that the lawmaker had received a formal request for documents. The
sources, who spoke on condition of anonymity because of the investigation, said
Frist is expected to testify under oath about what he knew about the company's
health in the weeks before he sold stock. Frist has told reporters that he did
nothing wrong and that he directed the sale to eliminate potential conflicts as
he considered a 2008 presidential bid.
The formal request for documents usually presages an acceleration of a
federal probe. In Frist's case, regulators had to proceed with caution due to
his status in Congress and their mutual desire to avoid triggering
constitutional objections to the release of documents. The disclosure of the
subpoena comes as Democrats blasted Frist anew for his financial and personal
ties to Hospital Corporation of America, a Nashville chain founded in 1968 by
his father and his brother, Thomas Frist Jr. Critics yesterday seized on a
report that Frist held a substantial amount of his family's hospital stock
outside of blind trusts between 1998 and 2002 -- a time when he asserted he did
not know how much of the stock he owned.
The Associated Press reported on Tuesday that Frist earned tens of thousands
of dollars from HCA stock in a partnership controlled by his brother, outside
of the blind trusts he created to avoid a conflict of interest.
"It seems that for years, Frist may have misled his constituents and the
American people about his health care industry stock holdings and the conflict
of interest they created as he drafted our nation's health care policy," said
Democratic National Committee Communications Director Karen Finney. "This deal
raises even more questions about the Republican culture of corruption in
Washington, D.C."
During his decade in the Senate, Frist has been active in shaping health
care policy, including creation of a Medicare prescription drug benefit.
Republican ethics lawyer Jan W. Baran also scored Frist for his handling of
his trusts. "This shows Senator Frist's capacity for clumsiness and bad
timing," Baran said. "He was trying to insulate himself from political charges
and now finds himself trying to defend himself because of the transparency of
his holdings."
The subpoena for documents related to the July stock sales was written
carefully to avoid asking for documents related directly to Frist's legislative
actions, according to sources. By keeping the request focused on his personal
activities, experts said, the SEC avoided raising objections from Senate
lawyers who might otherwise have fought the request on the grounds of
constitutional separation of powers.
The wording in the subpoena also ensured that Frist did not have to tell
colleagues about the document request or to otherwise involve them in the
investigation, congressional aides said.
The executive branch is prohibited from seeking documents or testimony that
relate to "legislative acts and the motivation for the performance of
legislative acts," said Kenneth Gross of Skadden Arps, an ethics law expert.
The ban is part of what is called the Constitution's "speech and debate"
clause, which insulates Congress from unwarranted intrusions by the executive
branch of government. Writing a subpoena that does not run afoul of the clause
-- and also possibly trigger a public disclosure of the subpoena -- required
careful work.
"There are some gray areas, clearly, and it could be tricky," said Baran, of
Wiley Rein & Fielding. Members of the House of Representatives must
disclose to the full House when they are subpoenaed. The Senate has its own
rules that sometimes require the body to deal with subpoenas, experts say, but
the Frist subpoena apparently has not triggered any of them.
A spokesman for Frist said yesterday: "As we have indicated, Senator Frist
has been fully cooperating with the authorities conducting the inquiries and
will continue to do so, including keeping our public comments to a minimum. The
issuance of a subpoena would be an expected and normal part of that
process."
Within days of Frist's July stock sale, HCA warned investors about
weaker-than-expected financial performance, which sent the stock price
spiraling downward by 9 percent in one day. Frist may have begun the process of
selling the stock April 29, months before the company's troubles were clear,
according to e-mail messages between the Tennessee Republican, his chief
counsel and his personal accountant that were reviewed by The Washington
Post.
Former SEC enforcement chief and retired federal judge Stanley Sporkin said
the agency has a "rich history" of probing officials at the highest level --
from Supreme Court Justice William O. Douglas to Carter administration budget
chief Bert Lance.
SEC Chairman Christopher Cox, a former House GOP member from California, has
removed himself from hearing evidence on or voting on the case, citing his ties
to Frist.
Staff writer Charles Babington contributed to this report.
© 2005 The Washington Post Company
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