HCA said it received a subpoena that is probably related to the sale of HCA stock by Sen. Bill Frist (R-Tenn.), a member of the family that founded the company. But a legal expert said the investigation is more likely to be focused on individuals, not HCA.
The U.S. attorney's office in New York issued the subpoena, HCA said in a brief statement. The company said it intends to cooperate with the subpoena. As far as HCA is aware, the company is not a target of the investigation, spokesman Jeff Prescott said.
Frist's office said it has been contacted by the Securities and Exchange Commission regarding the sales. The SEC also informally requested that HCA provide the agency with copies of all documents that will be turned over to answer the U.S. attorney's subpoena, a request with which the company will comply, Prescott said.
Frist, the Senate majority leader, placed his HCA stock in a blind trust when he was elected to the Senate in 1994 and earlier this year told the trustee to sell his shares in order to "eliminate the appearance of a conflict of interest," his office said in a statement. He ordered the trade based solely on publicly available information, the statement said. The sale came as HCA stock was reaching a 52-week high at about $58 per share, only to tumble after HCA issued a warning about disappointing profits in July.
Given what happened, it isn't surprising that federal investigators are looking into the stock sales, said Justin Klein, the partner in charge of the securities practice at the law firm Ballard Spahr Andrews & Ingersoll in Philadelphia.
"I don't think it's out of the ordinary that the SEC would look at a transaction by a large shareholder that occurred before a disappointing earnings announcement caused the stock to go down," Klein said. "That is certainly a circumstance under which you will see the government asking questions."
Companies are typically liable in insider trading cases only when they fail to protect material, nonpublic information until it is publicly disclosed, Klein said. A single employee, executive or director revealing nonpublic material information to a shareholder who acted on that inside information typically would not be enough to implicate the company, assuming that the company acted responsibly in protecting the information in the first place, he said.