by Bill Frist
Amy nodded and moved on to other more pressing topics. But a few days later, she was back in my office again with that same worried look.
“A Tennessee reporter was looking into the price of your HCA stock when you sold it, and apparently, the stock price fell shortly afterward. The Associated Press is running with an article out on the wire that implies that you might have had inside information from your family or somebody at HCA before the stock price dropped. He’s hinting that’s the reason you sold your stock.”
I was astounded: “You’ve got to be kidding me.”
The gravity of Amy’s statement stunned me at first. Although I was generally aware that the stock price had gone down by a few points recently, I had initiated the final sale of my remaining stock months before the price had slipped. Moreover, I had always sought both outside legal counsel and the written internal approval of the Senate Ethics Committee before making any moves related to the HCA stock, even though I was in no way expected or required to do so.
This was an issue I was sensitive to, given past criticism. Since my first day in office, I had been dogged by my opponents’ accusations that my investments in medical-related businesses somehow would compromise my independence on issues relating to health care. It was a specious charge at best, and one I’d gone overboard to dispel through complete transparency and honesty. But in the heated, accusatory post-Katrina Washington atmosphere and with my heightened visibility as the Republican leader, I was not surprised that some members of the media might try to make a name for themselves by looking for some hint of scandal in my personal finances. In Washington, scandal sells.
Amy cut to the heart of the matter with her next question. “Did you talk to your brother before you sold the stock?” she asked point-blank. “Or anyone else regarding the timing of the sale?”
Since my older brother Tommy was a founder, board member, and former chairman of HCA, the implication was obvious—that I might have somehow received inside information that the stock was likely to fall.
“No, Amy. Absolutely not,” I said. “Ever since the trust was set up years ago, they’ve been diversifying out of HCA and out of health stocks entirely. I’m tired of having to explain myself over and over to the critics who insist on seeing a potential conflict of interest. And as you know, during my last few years in the Senate, I want to focus more attention on health reform. The only surefire way to avoid more criticism is to own no health stocks. That’s why I instructed the trust to sell any remaining health stocks in my portfolio. That should put an end to the criticism once and for all.”
Amy nodded in understanding. “Okay. Sorry. Just had to ask.”
“I know, Amy,” I said with a smile. “You’re doing your job. But I’ve been really careful about this. Every step of the way, we’ve gone way beyond what we need to in order to dot all the i’s and cross all the t’s. There’s nothing to worry about.”
Nothing, that is, if you don’t worry about rumor, innuendo, and false reporting.
SURE ENOUGH, ON SEPTEMBER 21, 2005, THE ASSOCIATED PRESS story ran under the headline, “Senator Sold Stock Before Price Dropped; Shares Fell Two Weeks Later.” The very first sentence contained misleading statements:
Senate Majority Leader Bill Frist, a potential presidential candidate in 2008, sold all his stock in his family’s hospital corporation about two weeks before it issued a disappointing earnings report and the price fell 15 percent. 1
I wasn’t a presidential candidate, HCA was a publicly held company and not “my family’s” company, and the stock price had fallen less than 10 percent, which, of course, was bad enough for stockholders. But the glaring misinformation suggested to me that the reporter wasn’t interested in facts so much as allegations and insinuations. The story’s opener, “a potential presidential candidate,” probably explained the increased media scrutiny. To me it also suggested that the false accusations could have been politically motivated.
The following day, the Washington Post followed suit with an article: “Frist Stock Sell Raises Questions on Timing,” as well as another piece on the editorial page, “Mr. Frist’s Curious Timing,” with the latter suggesting that the Securities and Exchange Commission (SEC) should investigate “this case.”
Not surprisingly, the following day, the SEC picked up on the story. Allen Hicks, my chief legal counsel in the majority leader’s office, first learned of an inquiry into the sale of my personal stock in Hospital Corporation of America when an SEC representative called my office asking for information. Allen came to me immediately and said, “I know these allegations are baseless, but I think we better secure some outside counsel.”
The SEC’s involvement was appropriate given the media’s unfounded allegations. The SEC investigates any accusation of suspicious trading circumstances. I was not offended by that. I can’t say that I was happy, however, when I learned that the Department of Justice was also looking into the matter. I had no concern that they would find anything inappropriate, but U.S. Attorney Michael J. Garcia’s office in the Southern District of New York was known for its prosecution of major drug cases and terrorist cases. Was something beyond a stock sale pushing this story? Just to be investigated by such an office lent some credibility to the allegations. I knew that some people, even my closest friends who believed in my integrity, might raise their eyebrows and say, “Well, they must have some reason for looking into this matter.”
Truth is, the SEC and the U.S. attorney’s office would be remiss not to explore the facts once allegations were made, however false they might be. I understood that, respected their positions, and of course promised immediately to cooperate completely with their efforts. Little did I know at the time, however, that the SEC and Justice investigations would drag on for eighteen months, costing the government and me enormous sums of money. If only the millions of dollars spent by the American taxpayers and me personally on this baseless inquiry had been spent investigating the Bernie Madoffs of the world, maybe the public would have been much better off.
Meanwhile, for nearly a month following the initial flurry of articles, the press continued to cast doubts upon my integrity. This was killing me. Almost daily I would open my packet of news clips and read articles questioning my honesty. The New York Times asked, “What Did Bill Frist Know and How?” 2 and even my hometown newspaper, The Tennessean, ran articles with headlines such as, “Insider Trading Notoriously Hard to Prove.” 3 The not-so-subtle implication of such articles was that I was guilty of wrongdoing, but it might be difficult to prove.
To understand how all this came about, a bit of background is necessary.
Before serving in the Senate, while working as a practicing physician, I invested in many companies, including HCA. After being elected, I decided to put part of my personal stock portfolio into a “blind trust,” allowing professional asset managers to handle the accounts while I was in office. I was not required to do this by the Senate rules and most senators did not set up blind trusts. I took that extra step to quell any questions about possible conflicts of interest between my personal finances and my public service, especially since the largest portion of my holdings were in HCA.
During my first term in office, I became increasingly involved in health issues. As I rose in the senatorial ranks, so did the number of aspersions cast by the Democratic opposition regarding my stock holdings in HCA. By the time I ran for a second term in 2000, some Democrats went so far as to say that I should not even vote on any health-related legislation.
Keep in mind that I had never been part of HCA. The company had been the brainchild of my brother Tommy, and together with my father and entrepreneur Jack Massey, Tommy had nurtured the business to phenomenal success. They had every reason to be proud of their achievements, as was I. Yet my life had taken an entirely different course. I was never involved with HCA’s operations, I had never worked as a physician in an HCA-owned hospital, and in one sense, could have been regarded as a competitor when I helped develop the tra
nsplant center at Vanderbilt, which was not an HCA facility.
Despite not being required to do so, on two separate occasions I requested and obtained Senate Ethics Committee opinions acknowledging that my ownership of HCA stock complied with Senate rules and did not present a conflict of interest. Once I had placed my stock holdings in the blind trust, however, I was not permitted to be actively involved in the everyday details of buying or selling the stock. In fact I did not know what specific stocks were being bought or sold by the trustee. For any stock I put in the trust, I could instruct total sale out of it, but nothing more. Senate rules required reports by the trustees to senators who owned assets in the blind trust when any major activity—such as a large sale or purchase of stock—took place in the accounts. These same reports were sent simultaneously to the Senate Ethics Committee and became public information. A few other senators, including Ted Kennedy and John Kerry, also had holdings in blind trusts, and there rarely seemed to be any concerns.
The allegations of possible wrongdoing bubbled to the surface in 2005 when the media, the Democrats, and a number of my Republican colleagues began bandying my name about as a potential 2008 presidential candidate. Actually, I had begun to think about liquidating any remaining HCA stock that might still be in my trust soon after I became majority leader. Although I did not intend to run for president, I did want to keep all options for further public service open. Consequently, in April 2005, as I looked ahead to my final twenty months in the Senate, I decided after consultation with my advisors to make sure I would have no HCA stock by the time I retired from the Senate.
As it happened, at the time I was initiating this process, HCA was doing well. I had no economic reason to sell at the time. I asked Allen to determine whether Senate rules and relevant laws would allow me to direct my trustees to sell any remaining HCA stock in my blind trusts.
Although I was not required to request written judgments by the Senate Ethics Committee on whether I could sell my stock, I did so anyhow on May 20 and waited until I received formal approval before taking any action. It took several weeks before the Ethics Committee came back with their approval, so it wasn’t until June 13 that I issued a letter directing the trustees to sell any remaining HCA stock in my family’s trusts. The specific timing of the sale of the stock was up to the trustees, who had been diversifying out of the stock for years. Some of the stock was liquidated by July 1 and the remainder was sold over the next seven days. I was certain that I had handled the matter properly all the way along because we had gone to such extraordinary lengths, consulting with the attorneys and getting Ethics Committee preapproval in writing.
On July 13, HCA issued an earnings warning that due to treating a higher number of uninsured patients and fewer insured patients, the number of patients reneging on payments was higher, and therefore profits were lower than expected. The stock price dropped 9 percent.
When the Washington Post, the Associated Press, and liberal watchdog groups caught wind of the stock price dropping after I had issued my instructions, they smelled blood. Although I didn’t believe then (and still don’t) that the allegations against me were purely politically inspired, Democratic National Committee Chairman Howard Dean wasted no time in urging the government to “fully and vigorously investigate Frist’s suspicious stock trade.” 4 The House Democratic campaign committee chairman Rahm Emanuel caustically commented, “Bill Frist has this all upside down. He thought Terri Schiavo could see and his trust was blind.” 5 The war room of the Senate Democrats set up in the U.S. Capitol by Harry Reid stirred up the pot of controversy every way they could. The liberal left jumped on board because they saw this as a way to take down the Republican leader.
Exacerbating matters further, on September 29, Republican House Majority Leader Tom DeLay was indicted by a Texas grand jury for criminal conspiracy and money laundering. To have both Republican majority leaders under investigation at the same time was too good to be true as far as the Democrats were concerned. Although there was absolutely no connection whatsoever between the two, the Democrats hit the airwaves around the country deploring the Republican “culture of corruption,” and attempting to spatter my reputation with a “guilt by association” tie-in with DeLay’s indictment. More than a few liberal commentators took this opportunity to remind the public that Martha Stewart had been convicted for insider trading with far less money involved, and she had been sentenced to prison.
I had issued two press releases through my communications office on September 22 and 23. Then, on September 26, I made my first public statement to the media about the inquiry. With a throng of reporters gathered around, and microphones, cameras, and tape recorders thrust toward me from every angle, I briefly explained that I had initiated the sale of my stock months before, in April, not June; that I had requested preapproval from the Senate Ethics Committee in May; and that I had received that full approval in June, before issuing the letter to my trustees with instructions to sell any remaining stock.
“An examination of the facts will demonstrate that I acted properly,” I said. “I will cooperate with the Securities and Exchange Commission and the U.S. attorney for the Southern District of New York to provide the information they need as quickly as possible. My only objective in selling the stock was to eliminate the appearance of a conflict of interest. I had no information about HCA or its performance that was not publicly available when I directed the trustees to sell the stock.” I glanced at the reporters, most of whom I knew on a first-name basis. “Now, I’m going to get back to work.”
After that, I made a few more public statements about the matter, but for the most part, I simply let the inquiry run its drawn-out course. My lawyers advised me early on not to say too much. In retrospect, I don’t know whether that was the best way to handle the matter, since in Washington lack of response to allegations is routinely interpreted as a sign of guilt. But I took their advice. We had a lot of serious issues to tackle in the Senate, so I attempted to focus my attention there. Most of my friends on both sides of the aisle in the Senate expressed support for my predicament.
Even Democratic leader Harry Reid was generally very kind to my face, stating privately as well as publicly that he was certain I would never do anything wrong or unethical. Then Harry went out on the Senate floor and made a statement questioning my integrity. Of course, I heard about it, so I immediately left my office, walked to the Senate floor, and told him that I thought that his comment was unfair and politically driven. Harry apologized and never repeated his derogatory comment in public again—although at political fundraisers, Harry repeatedly sought to elicit a crowd response by panning me: “He came in like Jimmy Stewart and is leaving like Martha Stewart.” (One of my staff members later discovered that the line wasn’t original with Harry but had originated with American University professor James Thurber. Nevertheless, Harry adopted it as his own out on the fundraising trail for the next eighteen months.)
I understand political hardball. But I think my opponents crossed a line or two on this matter. Unfortunately, character assassination is a sport in Washington.
Meanwhile on September 30, an editorial in the Wall Street Journal adroitly described the allegations against me:
The way to understand the recent charges against Senate Majority Leader Bill Frist is as a case of no good deed going unpunished.
The SEC is investigating Mr. Frist for unloading his shares of hospital chain HCA prior to a July earnings warning. Democrats are suggesting that an HCA insider gave Mr. Frist a call to tip him off. Mr. Frist denies it, and to date, there is zero evidence—nada, zilch, nunca—to support the allegation. And nothing in Mr. Frist’s past or character suggests he’s the kind of politician who’d try to scam the system to save a few bucks. 6
The Journal emphasized that I had first sought legal advice about selling my HCA stock back in April 2005:
This would have been before even HCA would have foreseen earnings trouble. April would also have been a smart tim
e to sell, with the company’s stock up 40% for the year. The irony is that Mr. Frist was never required either to establish a blind trust or to sell his shares. In both cases he did so to insulate himself from the appearance of any conflict. Instead, in doing both he has only made himself a bigger target for those who’d suggest he has something to hide. 7
Then on Saturday, October 1, I was pleasantly surprised when Carrie Johnson, a staff writer for the Washington Post, presented a fair and mostly positive article with the headline, “Frist Sale of Stock Launched in April; Senator and Advisers Discussed It in E-Mail.” In her article, Johnson stated forthrightly:
Private e-mail between Senate Majority Leader Bill Frist and his advisers reflects that Frist began discussing the sale of his HCA Inc. stock in April, months before it became clear that the hospital firm’s shares would decline in value, according to documents reviewed by the Washington Post.
An April 29 message from G. Allen Hicks, chief counsel to the majority leader, informs the senator that they can discuss his “blind trust question sometime today.” Frist also exchanged e-mail with his accountant, Deborah Kolarich, in Nashville, the same day in what he called an effort to “dispose of all hospital stocks in all accounts that I have control of.” 8
As much as I tried to move on to matters more important to our country, in almost every interview, the subject of the HCA stock sale came up. “Why liquidate?” interviewers wanted to know. “Why now?”
But my Democratic colleagues focused on the stock issue. They continued to make patently offensive statements about the matter as long as the investigations remained open. Months and months went by. The media followed their lead and kept hammering away, as well. For instance, when I appeared on NBC’s Meet the Press on Sunday, January 29, 2006, nearly four full months after the Washington Post and Wall Street Journal had run articles revealing the e-mail trail that existed months in advance of my stock sale, the advertised subjects on the table that morning were the war in Iraq, national-security-related eavesdropping, Katrina, Hamas, and the upcoming presidential election campaigns. But the host, the late Tim Russert, a family friend and highly respected journalist, spent a major chunk of time drilling me about the HCA inquiry—even though there was really no news to report.