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Special Reports Last Updated: Dec 31st, 2005 - 13:52:10

The White House or the jailhouse for Bill Frist?
By Jason Leopold
Online Journal Contributing Writer

Oct 10, 2005, 23:14

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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 wasn't privy to any inside information leading up to the sale of his stock in Hospital Corporation of America (HCA), the country's largest for-profit hospital chain founded by Frist's 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.

Frist's 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 nation's healthcare policies. So, the senator's spokesman said, Frist drafted a letter to Northern Trust and Equitable Trust in Nashville on June 13 advising them to sell all of his stock in HCA, as well as his wife and children's 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 he's totally unaware of his personal financial investments -- and stock sales -- because it's in a blind trust.

The corporate media, quick to accept Frist's statements that he's been in the dark about his HCA holdings, were complicit in allowing the obvious conflict of having a senator who makes national decisions on healthcare that directly benefit the senator's fortunes and that of his family, fall off the radar screen.

Indeed, in Jan. 26, 2003, in an article, titled “Frist's 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 Frist's statement.

Frist knew that Scobey transferred three additional blocks of HCA stock -- worth $750,000 -- to his trust in 2001 and 2002, which came from Frist's parents' estate. Public filings show that Scobey sold as much as $8 million of Frist's HCA stock between 1994 and 2000, and 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 Frist's 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.

Frist's office provided the Scene with supporting documents into the senator's 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 Frist's "blind" trust isn't really blind at all.”

“Frist's 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 senator's increasing role in shaping the nation's 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, Frist's 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 was 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 and 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 had 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 Frist's brother-in-law H. Lee Barfield is a partner, drafted Frist's 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, doesn't 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 Frist's from .3 of 1 percent to .22 of 1 percent.

But wait, there's more. Back in September of 2002, a business partially owned and funded by Frist was embroiled in a lawsuit that claimed that the company's 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., didn't 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 Frist's 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, a Nashville newspaper, that the senator wasn't 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.

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