Thursday, October 13, 2005

Frist Financial Records Subpoenaed

The SEC has subpoenaed personal records and documents belonging to Senate Majority Leader Bill Frist (R-TN) as part of their investigation into possible insider trading associated with his sale of HCA, Inc stock. Shortly after the sale took place, the stock price fell over 9% due to negative earnings warnings. (Washington Post: SEC Issues Subpoena To Frist, Sources Say).

According to Senator Frist, he sold the stock to avoid any conflict of interest in a run-up to a potential 2008 presidential bid. Ironically, the controversy surrounding the conflict of interest issue may well scuttle that bid regardless of outcome. It is certain to be a campaign issue, even if Frist is not implicated in any wrong doing.

The heart of the issue is not so much the sale of the stock before negative earnings are announced. On the surface, there is a good deal of credibility attributable to the claim that he was positioning himself for a 2008 run. The undercurrent of this issue, however, is the fact that he owned this stock, in partnership with his brother, outside of a blind trust in the first place. Owning health care stock at a time when he is actively promoting legislation regarding US health care policy does sound like a conflict of interest that his constituents will need to address.

At best, this activity lends fodder to DNC arguments targeting high profile Republicans in the run-up to the 2006 mid-terms. As Republican ethics lawyer Jan Barans put it, "This shows Senator Frist's capacity for clumsiness and bad timing. He was trying to insulate himself from political charges and now finds himself trying to defend himself because of the transparency of his holdings." Clumsiness and bad timing have been the downfall of more than a few politicians.

What will certainly be a campaign issue is whether or not the senator mislead constituents about his health care holdings. Certainly, all of this could have been avoided had the HCA stock been held in blind trust. That he chose instead to hold the stock in partnership with his brother would appear on the surface to be a significant error in judgement, and one that may cost him a presidential bid. I don't believe it will develop into the full-fledged scandal that some are hoping, however. I don't believe the SEC will find any evidence of insider trading related to his sale of the stock in July. On the other hand, I don't believe that will be enough to prevent this issue from surfacing in the 2008 campaign should Senator Frist toss his hat in the ring. Clumsiness and bad timing indeed.


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