The Securities and Exchange Commission stepped up its inquiry into sales of HCA stock by Senate Majority Leader Bill Frist, and the probe now includes some stock sales made by HCA executives, published reports said.
Both Frist's office and Nashville-based HCA confirmed that the SEC notified them that the inquiry into the stock sales has become a formal investigation. An SEC spokesman declined to confirm the report. Commission votes on whether to open formal investigations are not public record, he said.
Frist (R-Tenn.) revealed that he ordered the trustee of his blind trust and the trusts of his immediate family members to sell all stock in HCA, which was founded by the senator's father and brother. The stock was sold in June and July, before HCA warned in mid-July about a possible shortfall in projected profits.
When a public figure such as Frist is the subject of an SEC investigation, commissioners typically vote to make the investigation formal early on, so there will be no question that the agency devoted full resources to the matter, according to a person familiar with SEC practices. The U.S. attorney in New York has also issued subpoenas to Frist and HCA.
A Frist spokeswoman said the senator will continue to cooperate with the investigation and referred other questions to the statement he issued, which detailed the sequence of events related to the sales. HCA also said it would cooperate, and a spokesman declined to comment beyond the short news release the company issued.
Between January and July, 25 HCA executives sold nearly 3.3 million shares for $166.4 million, for pre-tax profits of $78.4 million, according to SEC filings compiled by Thomson Financial. These figures include only sales of shares directly owned by the executives and exclude shares that were indirectly owned but reported in securities filings, such as the sale of shares held in trust for an executive's children.
Trading by insiders at HCA is far greater than in the past three years, Thomson's figures showed. In 2004, 15 insiders sold 832,672 shares for gross proceeds of $33.9 million and pre-tax profits of $8.2 million. In 2003, 12 insiders sold 297,088 shares for gross proceeds of $11.5 million, and pre-tax profits of $5.8 million. In 2002, 17 insiders sold more than 1.1 million shares for gross proceeds of $56.8 million and pre-tax profits of $33.5 million.
The insider-selling patterns track HCA's stock value, which was more valuable in 2002 and 2005 than in 2003 and 2004, according to stock quotes provided by Commodity Systems. HCA's stock traded at $40 or better for almost all of 2002, when there was more selling. After starting 2005 at about $39.60, HCA had a high closing price of $58, which came in June. During 2002 and 2003, the stock price at closing was below $40 more than twice as often as it was above $40, and it hit a low for the period from the beginning of 2002 through Friday's close of $27.28 on April 16, 2003.
HCA's top executives have been part of this year's sell-off, Thomson's research shows. Jack Bovender Jr., chairman and chief executive officer, sold 500,000 shares in February for gross proceeds of $22.3 million. Chief Operating Officer Richard Bracken sold 327,000 shares in April, May and June for gross proceeds of $17.7 million. R. Milton Johnson, executive vice president and chief financial officer, sold 150,000 shares in April for $8.3 million.