The Senate majority leader’s divestment before a price drop faces two federal
probes. SEC Chairman Cox will not take part in the inquiry.

Los Angeles Times

WASHINGTON, D.C. — In his first public comments about two federal investigations into the sale of his stock in the healthcare company HCA, Senate Majority Leader Bill Frist (R-Tenn.) insisted Monday that he had done nothing wrong and said legal advisors
had approved his actions in advance.

Meanwhile, Christopher Cox, the new chairman of the Securities and Exchange Commission, said that, to avoid the appearance of impropriety, he would not participate in the SEC investigation of Frist, a former congressional colleague.

The two developments underscore the sensitivity of the accusations against Frist, who has been mentioned as a possible Republican candidate for president in 2008. He has already announced that he will not run for reelection next year.

Nashville-based HCA was founded by the Frist family, and Frist’s brother Thomas is on the board of directors. Frist placed his HCA holdings in blind trusts in 1995, the year after he was elected to the Senate, and transferred them to new blind trusts in 2000.

His political problems emerged last week with media reports that in June he had instructed the trustees to unload all of his HCA stock, along with his wife’s and children’s — just before the company released a weak earnings report that sent shares tumbling. The Justice Department and the SEC have launched investigations.

“An examination of the facts will demonstrate that I acted properly,” Frist said. “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 that his only objective in selling was “to avoid the appearance of a conflict of interest.” Last year, the Foundation for Taxpayer and Consumer Rights, a Santa Monica watchdog group, complained to the Senate Select Committee on Ethics that because the Senate votes on legislation that could enrich HCA, Frist should not hold its shares. The committee dismissed the complaint, saying there was no conflict under Senate rules.

Frist said he had received “pre-approval” in June from the ethics committee to instruct the trustees to sell the stock, but he offered no details on how much was sold or what profit he earned. In Senate financial disclosure forms filed this year, Frist estimated the value of the holdings in his blind trusts at between $7 million and $35 million.

“Now I’m being asked to explain this decision” to sell the stock, he said. “I understand that and I welcome it.”

Frist said he would cooperate with the SEC and the Justice Department “to provide the information that they need.”

“Now I’m going back to work,” he said, walking away from reporters and refusing to answer questions.

Seeking to head off a political flap of his own, Cox announced Monday that he would not participate in the SEC investigation.

“Because of my service in the congressional leadership for the last 10 years, I have recused myself in this matter,” Cox, a former Republican congressman from Newport Beach who became SEC chairman in August, said in a statement. “The purpose of the recusal is to avoid any appearance of impropriety in the commission’s consideration of this case.”

Federal Election Commission records show that Cox contributed $1,000 to Frist’s reelection campaign in 2000.

HCA revealed last week that the Justice Department had issued a subpoena for documents related to the Frist matter, which is being investigated by the U.S. attorney’s office in the Southern District of New York.

The SEC investigation appears more preliminary. A decision to move ahead with a formal investigation would require a vote of approval from the commission, which is made up of three Republicans and two Democrats.

At that point, political pressures could have focused increasingly on the chairman.

Cox’s decision underlines the new order at the SEC, where the chairman’s office is now occupied by a longtime politician rather than a Wall Street alumnus.

“I think what he’s really saying is, ‘If we don’t bring a case, I don’t want people to say I used my influence’ ” to block it, said Roberta S. Karmel, a former SEC commissioner and a professor at Brooklyn Law School.

Without Cox, the SEC‘s remaining members will be left to make key decisions, such as formalizing the probe and, if necessary, settling it.
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Times staff writer Mary Curtius contributed to this report.