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'Just Trust Me'
Senate Majority Leader Bill Frist (R-TN) has publicly defended himself against allegations of insider trading by insisting that he was not aware of inside information when he sold his stock in Hospital Corporation of America (HCA), the hospital chain founded by his father and brother. He has also stated, numerous times since his election to the Senate, that because his HCA securities were in a “qualified blind trust,” he could not even be certain about the extent of his holdings at any given time. Frist's civil and criminal exposure under the securities laws is likely to turn on interpretations of SEC Rule 10b5-1, which addresses trading “on the basis of” material nonpublic information in insider trading cases.
Frist's HCA Transactions
On June 13, 2005, Frist instructed his independent Trustees to sell all of his HCA stock. Two weeks after the sale was completed, HCA issued a negative earnings report, and its stock lost 9% of its value. Frist has insisted that his “only objective in selling the stock was to eliminate the appearance of a conflict of interest,” and that he “had no information about HCA or its performance that was not publicly available.” Nat'l L. J., Oct. 1, 2005. He said his HCA securities had been held in a “qualified blind trust” since 2000 and that the trust prevented him from knowing the extent of his holdings. Frist's position has been undermined by the recent emergence of documents suggesting he received regular updates from the Trustees. But e-mails and other correspondence between Frist, members of his family and his accountants suggest that he began contemplating the sale as early as April, which would bolster his argument that the sale was not related to HCA's negative earnings report.
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