Sept. 28 (Bloomberg) -- U.S. Senate Majority Leader Bill Frist faces a near-term ordeal unwelcome to anyone, particularly an ambitious politician: an official probe into his personal financial dealings by the U.S. Securities and Exchange Commission.

The SEC authorized a formal order of investigation of Frist's sale in June of HCA Inc. shares, people with direct knowledge of the inquiry said yesterday. The order allows the agency's enforcement unit to subpoena documents and compel witnesses to testify, said the people, who asked not to be identified because the order hasn't been made public.

``This turns the flame up under the kettle and keeps the water boiling,'' said Stuart Rothenberg, editor of the independent Rothenberg Poltical Report in Washington. ``It means he's going to continue to be peppered with questions about this stock sale, and no politician wants to be questioned about things like that.''

A formal order requires the approval of at least one of the SEC's five commissioners. While it raises the legal stakes for Frist, a Tennessee Republican, it doesn't indicate that the SEC's investigators have uncovered evidence of illegal insider trading, said Michael Missal, a former enforcement lawyer at the agency.

``Given the notoriety of this matter, presumably the SEC staff wants to make absolutely sure it can get information quickly from sources other than Senator Frist, who has already said he's cooperating,'' said Missal, now a partner at Kirkpatrick & Lockhart Nicholson Graham in Washington.

Amy Call, a spokeswoman for Frist, didn't reply to a request for comment after business hours yesterday. John Nester, an SEC spokesman, declined to comment.

SEC Chairman

Christopher Cox, the agency's chairman and a former Republican lawmaker, said Sept. 26 he would recuse himself from the case to avoid the ``appearance of impropriety.''

Frist, the No. 1 Senate Republican and a possible presidential candidate in 2008, said Sept. 26 that he acted properly in selling the HCA shares, which were held in a blind trust.

Frist's high profile may raise the stakes of any investigation, according to Donald Langevoort, a former SEC lawyer and now a law professor at Georgetown University in Washington. The SEC risked being second-guessed for political reasons if it failed to conduct an exhaustive investigation, he said last week.

Langevoort said a formal inquiry could mean demands from the SEC staff for phone records, e-mails, witness testimony, and bank records.

The SEC's decision to step up its investigation means it will likely stretch on for at least several weeks, and perhaps months, according to Missal, the Kirkpatrick & Lockhart lawyer.

Earnings Notice

Frist, 53, directed the trustees of his blind trust to sell his shares on June 13, one month before the company said its second-quarter earnings would fail to meet analysts' estimates. The trustees notified Frist on July 1 that the shares had been sold. When HCA issued its earnings notice on July 13, the stock fell $4.86 to $50.05, the biggest decline in more than two years. During the two-week period when Frist's sale occurred, the shares averaged $57.21, reaching a 52-week high of $58.60 on June 22.

Nashville, Tennessee-based HCA, the biggest U.S. hospital chain, was founded by Frist's father and brother, who serves as a director on the company's board.

Justice Department

The Department of Justice is also investigating the matter. HCA said Sept. 23 that it received a subpoena from the U.S. attorney in Manhattan, and Frist said he will cooperate with the prosecutor's office. HCA also said it ``intends to cooperate fully.''

In his first public comments Sept. 26, Frist insisted he didn't have non-public information before making the decision to sell. He also alluded to a possible presidential bid, saying he wanted to put an end to persistent questions about his HCA holdings as he prepared for his ``final years in the Senate and what might come next.''

``An examination of the facts will demonstrate I acted properly,'' Frist told reporters in Washington. ``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 he wanted to divest his shares to remove any possibility of a conflict of interest on health-care policy, and in April asked his staff to consult with outside counsel and Senate ethics committee staff to ensure the rules permitted him to direct the sale. He said they found the sale was allowed.

Two outside ethics groups -- Citizens for Responsibility and Ethics in Washington and Common Cause -- have called on the Senate ethics committee to look into the sales and Frist's communications with the trustee managing his Senate-approved blind trust, which held the shares.

To contact the reporter on this story:
Otis Bilodeau in Washington at  obilodeau@bloomberg.net.

Last Updated: September 28, 2005 00:07 EDT

Commentary:
Republicans in Congress went after Martha Stewart with a vengeance. Will they go after Frist? Hell no. They didn't go after Pat Robertson for spouting terrorist death threats or Rush Limbaugh's illegal drug habit.

Here's how the "rule of law" crowd works. If you're a republican. laws exist only for peons. Frist, Robertson, Bush and Limbaugh can break laws with impunity. At a minimum the GOP should demand he testify under oath as they did with Ms. Stewart. Then if he makes a single mistake - throw him in jail for perjury. (they didn't get Ms. Stewart on insider trading, they got her on lying about it. Frist has already lied so he's at least as guilty as Martha Stewart.