The Decline
And Fall Of
Senator Bill Frist
By Jason Leopold
28 September, 2005
Countercurrents.org
It's
one thing to lie in politics. It's another to be caught in a lie. Bill
Frist has been caught in a lie. His political future is over. The immediate
question is, can he survive as Majority Leader?
The Tennessee Republican
claims he wasnt privy to any inside information leading up to
the sale of his stock in Hospital Corporation of America (HCA), the
countrys largest for-profit hospital chain founded by Frists
father, Thomas, and brother, Thomas Jr., weeks before the company reported
lower than expected earnings July 13 that sent the stock south.
Now the Securities
and Exchange Commission is investigating the matter, a spokesman for
the senator said last week, to determine if Frist broke any laws.
Frists press
secretary told the Washington Post last week that Frist decided to sell
his stock to eliminate any appearance of a conflict-of-interest due
to his work in the senate in shaping the nations healthcare policies.
So, the senators spokesman said, Frist drafted a letter to Northern
Trust and Equitable Trust in Nashville June 13 advising them to sell
all of his stock in HCA, as well as his wife and childrens investments
in the company.
Still, the improprieties
have been in the making for quite some time. According to an Associated
Press report Saturday, Frist received regular updates of transfers
of assets to his blind trusts and sales of assets. He also was able
to initiate a stock sale of a hospital chain founded by his family with
perfect timing. Shortly after the sale this summer, the stock price
dived.
In fact, Frist had
attempted to have it both ways since he created his so-called blind
trust in the 1990s: being intimately involved with his investments that
directly conflict with his political work as a senator and then claiming
that hes totally unaware of his personal financial investmentsand
stock salesbecause its in a blind trust.
The mainstream media,
quick to accept Frists statements that hes been in the dark
about his HCA holdings, was complicit in allowing the obvious conflict
of having a senator who makes national decisions on healthcare that
directly benefit the senators fortunes and that of his family,
fall off the radar screen.
Indeed, in Jan.
26, 2003, story titled Frists Health Care Votes Reflect
Roots, Frist told the Post that he no longer knows how much
the (HCA) stock is worth.
But letters sent
to Frist by Kirk Scobey Jr., his trustee, and documents filed with the
senate contradict the Frists statement.
Frist knew that
Scobey transferred three additional blocks of HCA stockworth $750,000to
his trust in 2001 and 2002, which came from Frists parents
estate. More than $750,000 in HCA stock was transferred into the blind
trust during that time period from the estate of his late parents. Public
filings show that Scobey sold as much as $8 million of Frists
HCA stock between 1994 and 2000, a bulk of which was sold between 2001
and 2002.
Interestingly,
Frist knew of these sales, or at least had access to information that
these sales took place, reported the Nashville Scene, in an investigative
story in July 2003 into Frists so-called blind trust. How?
The income from these sales of HCA stock was reported on Frist's annual
financial disclosure statements that he filed with the Secretary of
the Senate.
"Given the
annual reporting of capital gains, it's kind of a crock for Frist to
say he doesn't know what he owns because it's in a blind trust,"
Charlie Gofen, a portfolio manager at Gofen and Glossberg, a Chicago-based
investment-counseling firm, told the paper at the time.
Frists office
provided the Scene with supporting documents into the senators
blind trust. The paper hired an eight-member, bipartisan, unpaid panel
of experts in trusts from around the country to analyze it and what
the panel discovered was that Frists blind trust "blind"
trust isn't really blind at all.
Frists
ownership of HCA stock isn't considered a conflict of interest according
to Senate rules, the paper reported. But then, according
to those rules, almost nothing qualifies as a conflict of interest.
Frist created his
blind trust in accordance with the rules of the Ethics in Government
Act. That law states that a "qualified blind trust" must meet
certain requirements:
* The trustee, who
is the individual charged with managing the assets of the trust, must
be independent.
* There can be no
restrictions on disposing of the trust's assets.
* Communication between the trustee and the politician must be limited.
* And the trust must be approved by the Senate's Ethics Committee.
In 1995, with his
holdings in HCA and the senators increasing role in shaping the
nations healthcare policies coming under intense scrutiny, Frist
first put his assets into a blind trust. Five years later, in December
2000, Frist put his assets into a newer blind trust, prompting the Nashville
Scene to ask Why the new trust?
At the time
he created his first trust, Frists portfolio included so-called
"non-public securities," the paper reported. More than
likely, these were private partnerships and the like. Federal laws say
such securities cannot be put into a so-called "qualified blind
trust"the type of high-end trust that Frist now has. Once
these securities were sold the "more stringent" form of trust
was created "as soon as practical."
Experts interviewed
by the paper said what was likely the key selling point for Frist when
he created the new trust in December 2000 was that he given the opportunity
to look at his specific financial holdings, including HCA.
Whenever one
blind trust is discarded in favor of a newer one, panelists say the
blind trust ceases to be blind during the changeover period, the
paper reported.
But what was virtually
unknown, is that Frist was able to figure out the value of his financial
holdings in the blind trust in a much simpler way that would give him
a window into the value of his HCA stock, the main source of his wealth.
Each year, the senator files his annual financial disclosure statement
with the Office of the Secretary of the Senate Frist is required to
disclose the amount of income generated from his blind trust. Considering
that 89 percent of his assets are tied up in HCA stock, the senator
would have a good indication of how well his stock has performed.
When Frist named
Scobey as the administrator of his blind trust, he was choosing a well-connected
family friend.
James C. Gooch,
a trust and estates attorney who has worked at the prestigious Nashville
law firm Bass Berry & Sims, the same firm where Frists brother-in-law
H. Lee Barfield is a partner, drafted Frists trust, which, among
other things, states that the trust is concentrated in the stock
of HCA; and Scobey, president of Equitable Trust, an institution
Frist has done business with for years, was chosen as the trustee.
Scobey's boss
at Equitable is William H. Cammack, the firm's chairman. In fact, Gooch,
Cammack and Scobey are all solid members of genteel West Nashville culture,
the same culture that produced and nurtured Bill Frist, the Nashville
Scene reported.
Scobey, according
to documents filed with the Secretary of the Senate, doesnt charge
Frist a substantial fee to manage the trust. Furthermore, Equitable
waived its $5,000 annual fee it usually charges individuals to manage
similar assets, as well as cut its management fee for trusts as big
as Frists from .3 of 1 percent to .22 of 1 percent.
But wait, theres
more. Back in September of 2002, a business partially owned and funded
by Frist was embroiled in a lawsuit that claimed that the companys
founder, along with Frist's business agent, sold a Laundromat to a Bellevue,
Tenn., couple at an inflated price.
Jon and Lynn Hargis
of Bellevue, Tenn., didnt accuse the senator of wrongdoing in
their lawsuit against Campus Concepts Inc., a company that Frist holds
a 49 percent stake in. But the couple said Frists close friend
and business partner, David E. Harvey, the president of Campus Concepts,
had told them that the Laundromat had grossed $10,000 more a month than
it was actually bringing in. The Hargises said Harvey provided them
with tax returns to back up his claims and the couple then agreed to
purchase the Laundromat for $460,000.
The Hargises discovered
a few months later that the income figures Harvey provided were grossly
inflated and that he lied in papers he filed with the Tennessee Department
of Revenue. Frist has been an investor in Campus Concepts since 1991.
At the time the
lawsuit was filed, a spokeswoman for Frist told The Tennessean Nashville
newspaper that the senator wasnt involved in the "day-to-day
operations" of Campus Concepts and that his share and investment
in the business was placed into a blind trust.
However, financial
disclosure documents signed by Frist, a Tennessee Republican from Nashville,
and filed with the Senate starting the year after he took office show
he listed Campus Concepts as one of his assets, valued at $50,000-$100,000,
the paper reported. His most recent disclosure for [2001] lists
as an asset an unsecured note from [the Laundromat] valued at $100,000-$250,000.
Asked how Frist could provide such information if he had no knowledge
of the assets in his blind trust, Frists spokeswoman would not
elaborate.
It remains to be
seen whether someone inside Hospital Corporation of America (HCA) tipped
off Frist earlier this year that the for-profit hospital chain founded
by his father, Thomas, and brother, Thomas Jr., expected to forecast
lower second quarter earnings July 13, just a couple of weeks after
Frist sold his stock, due to, among other things, an increase in uninsured
hospital admissions at HCA facilities. Or perhaps Frist is just a savvy
investor and the timing of his stock sales is coincidental.
It does seem that
happenstance has been good to Senator Frist and HCA. Not long after
he was chosen as Majority Leader, the Department of Justice abruptly
ended a 10-year probe into how HCA defrauded the federal governments
Medicare and Medicaid programs. The Justice Department, which surely
had been pursuing federal criminal charges against HCA executives, (including
Frists brother, Thomas Jr., HCAs former chief executive
and current board member) agreed to a $631 million settlement. In total,
HCA paid $1.7 billion in fines to keep at least one Frist out of jail,
making it the largest fraud settlement in U.S. history.
In February, just
a few months before Frist claims he instructed the administrator of
his blind trust to unload his shares of HCA, company insiders were dumping
shares by the truckload, prompting shareholders to raise questions on
message boards and during HCA investor conference calls whether HCA
executivesand possibly Fristknew something that the public
didnt know.
A number of HCA
executives seemed to be were aware that the increase in treating uninsured
patients would have a negative impact on the companys earnings.
That would explain the massive sell off of HCA stock that started Feb.
2, when HCA chairman Jack Bovender sold 500,000 shares (despite the
fact that HCA stock was near a 52-week high) earning roughly $9 million.
Bovender dumped
his shares a day after a government official testified that the health
care industrys biggest problem was an increasing number of bad
debts from the uninsured that would no doubt worsen during the course
of the year.
Mike Leavitt, secretary
of the U.S. Department of Health and Human Services, said the Medicaid
program was on shaky ground and there was a desperate need to control
spending on the government's health care coverage for the poor, according
to a May 6 story on HCA in TheStreet.com.
In April, Congress
passed a budget that cut Medicaid by $10 billion over five years for
the first time since 1997, which is incidentally the same year that
Congress passed the Balanced Budget Act that reduced hospital
payments and sent the industry into a tailspin, TheStreet.com
reported. Thats a major financial blow to hospitals such as the
ones controlled by HCA and is what likely prompted the huge selloff
by HCA executives.
Shortly after Bovender
sold his shares several other insiders, including Treasurer David Anderson
and Chief Investment Officer Noel Williams and three vice presidents
sold their stock too, clearing tens of millions of dollars. In fact,
between January and June, HCA insiders sold shares worth $112 million,
879,000 shares between March and April alone, netting the execs $45
million.
Insider sales increased
in the beginning of March when HCA said it planned to sell 10 of its
hospitals that were located in poor states that were dealing with Medicaid
troubles. On April 22, HCA President Richard Bracken sold $4.13 million
of company stock followed by Milton Johnson, the companys chief
financial officer, who sold twice that amount.
Speaking of the
pending hospital sales, a footnote in HCAs past proxy statements
researched for this story has revealed something few HCA investors seem
to be aware of: the cozy and questionable business relationship between
the hospital chain and a company operated by the son-in-law of HCAs
former chairman, Thomas Frist, Senator Frists father.
A company owned
by the elder Frists son-in-law, Charles Elcan, bought 116 medical
office buildings from HCA back in December 2000 for $250 million, which
the hospital chain disclosed in a 2001 SEC filing, the website footnoted.org
said in April 22 posting. In a filing HCA made with the SEC last year
when the company, known as MedCap was sold for $575 million, HCA disclosed
for the first time that Elcan only put up a small fraction of the initial
$250 million back in December 2000.
This year,
HCA has provided even more details, though its a somewhat convoluted
path involving a swap transaction that involves quite a bit of alphabet
soup, said footnoted.org. What it appears to boil down to
is that HCA had to ante up even more money than it previously disclosed
to essentially help the son-in-law out of a jam, even though it was
unusually generous when it sold the office buildings to Elcan back in
December 2000, since that investment more than doubled in less than
three years. HCA has chosen to let details of the deal trickle out gradually
over the past few years which certainly leave one with the impression
that theyre trying to hide something.
Jason Leopold has
written about corporate malfeasance for The Wall Street Journal, The
Financial Times, The Nation, The San Francisco Chronicle, and numerous
other national and international publications. He is the author of the
explosive memoir, News Junkie, to be released in the spring of 2006
by Process/Feral House Books. Visit Leopold's website at www.jasonleopold.com
for updates.
© 2005 Jason
Leopold