When Frist named Scobey as the administrator of his blind trust, he was choosing a well-connected family friend.
James C. Gooch, a trust and estates attorney who has worked at the prestigious Nashville law firm Bass Berry & Sims, the same firm where Frist's brother-in-law H. Lee Barfield is a partner, drafted Frist's trust, which, among other things, states that the trust is "concentrated in the stock of HCA"; and Scobey, president of Equitable Trust, an institution Frist has done business with for years, was chosen as the trustee.
"Scobey's boss at Equitable is William H. Cammack, the firm's chairman. In fact, Gooch, Cammack and Scobey are all solid members of genteel West Nashville culture, the same culture that produced and
nurtured Bill Frist," the Nashville Scene reported.
Scobey, according to documents filed with the Secretary of the Senate, doesn't charge Frist a substantial fee to manage the trust. Furthermore, Equitable waived its $5,000 annual fee it usually charges individuals to manage similar assets, as well as cut its management fee for trusts as big as Frist's from .3 of 1 percent to .22 of 1 percent.
Jon and Lynn Hargis of Bellevue, Tenn., didn't accuse the senator of wrongdoing in their lawsuit against Campus Concepts Inc., a company that Frist holds a 49 percent stake in. But the couple said Frist's close friend and business partner, David E. Harvey, the president of Campus Concepts, had told them that the Laundromat had grossed $10,000 more a month than it was actually bringing in. The Hargises said Harvey provided them with tax returns to back up his claims and the couple then agreed to purchase the Laundromat for $460,000.
The Hargises discovered a few months later that the income figures Harvey provided were grossly inflated and that he lied in papers he filed with the Tennessee Department of Revenue. Frist has been an investor in Campus Concepts since 1991.
At the time the lawsuit was filed, a spokeswoman for Frist told The Tennessean Nashville newspaper that the senator wasn't involved in the "day-to-day operations" of Campus Concepts and that his share and investment in the business was placed into a blind trust.
"However, financial disclosure documents signed by Frist, a Tennessee Republican from Nashville, and filed with the Senate starting the year after he took office show he listed Campus Concepts as one of his assets, valued at $50,000-$100,000," the paper reported. "His most recent disclosure for [2001] lists as an asset an unsecured note from [the Laundromat] valued at $100,000-$250,000. Asked how Frist could provide such information if he had no knowledge of the assets in his blind trust, Frist's spokeswoman would not elaborate."
It remains to be seen whether someone inside Hospital Corporation of America (HCA) tipped off Frist earlier this year that the for-profit hospital chain founded by his father, Thomas, and brother, Thomas Jr., expected to forecast lower second quarter earnings July 13, just a couple of weeks after Frist sold his stock, due to, among other things, an increase in uninsured hospital admissions at HCA facilities. Or perhaps Frist is just a savvy investor and the timing of his stock sales is coincidental.
It does seem that happenstance has been good to Senator Frist and HCA. Not long after he was chosen as Majority Leader, the Department of Justice abruptly ended a 10-year probe into how HCA defrauded the federal government's Medicare and Medicaid programs. The Justice Department, which surely had been pursuing federal criminal charges against HCA executives, (including Frist's brother, Thomas Jr., HCA's former chief executive and current board member) agreed to a $631 million settlement. In total, HCA paid $1.7 billion in fines to keep at least one Frist out of jail, making it the largest fraud settlement in U.S. history.
In February, just a few months before Frist claims he instructed the administrator of his blind trust to unload his shares of HCA, company insiders were dumping shares by the truckload, prompting shareholders to raise questions on message boards and during HCA investor conference calls whether HCA executives""and possibly Frist""knew something that the public didn't know.
A number of HCA executives seemed to be were aware that the increase in treating uninsured patients would have a negative impact on the company's earnings. That would explain the massive sell off of HCA stock that started Feb. 2, when HCA chairman Jack Bovender sold 500,000 shares (despite the fact that HCA stock was near a 52-week high) earning roughly $9 million.
Bovender dumped his shares a day after a government official testified that the health care industry's biggest problem was an increasing number of bad debts from the uninsured that would no doubt worsen during the course of the year.
Mike Leavitt, secretary of the U.S. Department of Health and Human Services, said the Medicaid program was on shaky ground and there was a desperate need to control spending on the government's health care coverage for the poor, according to a May 6 story on HCA in TheStreet.com.
In April, Congress passed a budget that cut Medicaid by $10 billion over five years for the first time since 1997, which is incidentally the same year that "Congress passed the Balanced Budget Act that reduced hospital payments and sent the industry into a tailspin," TheStreet.com reported. That's a major financial blow to hospitals such as the ones controlled by HCA and is what likely prompted the huge selloff by HCA executives.
Shortly after Bovender sold his shares several other insiders, including Treasurer David Anderson and Chief Investment Officer Noel Williams and three vice presidents sold their stock too, clearing tens of millions of dollars. In fact, between January and June, HCA insiders sold shares worth $112 million, 879,000 shares between March and April alone, netting the execs $45 million.
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