Stephen Bainbridge and Power Line have done excellent work in examining the charges of insider trading that have prompted an investigation of Senate Majority Leader Bill Frist. That should surprise no one, of course; Stephen and Paul Mirengoff have outstanding legal minds and a wealth of knowledge on the regulations surrounding stock trading.

However, both Stephen and Paul miss two aspects of this story. The first involves a separate legal question in my original post, but not referenced in either of their responses. The AP reported separately from the Washington Post that Bill Frist knew that he owned the HCA stock despite the trust supposedly being blind. His trustees informed him by letter that they had purchased a significant amount of the stock two weeks before he told people that he had no idea what kind of assets he had in that portfolio:

Frist, asked in a television interview in January 2003 whether he should sell his HCA stock, responded: "Well, I think really for our viewers it should be understood that I put this into a blind trust. So as far as I know, I own no HCA stock"

Frist, referring to his trust and those of his family, also said in the interview, "I have no control. It is illegal right now for me to know what the composition of those trusts are. So I have no idea."

Documents filed with the Senate showed that just two weeks before those comments, the trustee of the senator's trust, M. Kirk Scobey Jr., wrote to Frist that HCA stock was contributed to the trust. It was valued at $15,000 and $50,000.

The documents filed by the trustees of Frist's blind trusts were obtained by The Associated Press on Friday.

Frist's defenders claim that the Senator never saw the letter, but that seems rather lame as an excuse. A blind trust should not have its trustees communicating about the components of the portfolio under any circumstances; the need for the blind trust is to ensure that the owner does not take actions that benefit his own finances. If Frist had truly set up the trust as blind, why did the trustees send updates about purchases and sales? What would be the point of the blind trust with that kind of communication going on, whether or not Frist ever personally read the letters? The only assumption one can reasonable reach is that Frist's trustees had orders to keep him informed of the transactions.

That brings us to the other aspect that Paul and Stephen miss: the political aspects. In January, he told his constituents that he had no clue whether he owned HCA stock. If the AP documents prove authentic, he had set up his trust to keep him informed of the components of his portfolio. That means he lied about the blind trust. That may not rise to a violation of the law, but it certainly amounts to a violation of the trust that Frist needs between himself and the voters. Under those circumstances, Frist doesn't belong as a party leader in the Senate, and perhaps his constituents might want to rethink his representation of him there in any capacity.

As I posted earlier, we need to ensure that those documents are authentic. If they are -- which is what I said earlier -- then Frist needs to step down as Senate Majority Leader, regardless of whether he engaged in insider trading. Lying about the blind trust will give us enough headaches, and given Frist's generally lackluster performance in his leadership role anyway, he isn't worth the political capital that the GOP will have to spend defending him.

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» Market Timing from Joust The Facts
Sen. Bill Frist (R-TN) is in some hot water over the sale of a large amount of stock in HCA, his family's hospital corporation. The sale apparently came just prior to a disappointing earnings report that caused the stock to [Read More]

Tracked on September 26, 2005 5:29 AM

» Fristy Meets His Thurmond Birthday Party? from Hard Starboard
As readers of this space know very well, I am no big fan of Senate Majority Leader Bill Frist. His utter lack of courage and leadership skills was exposed this past spring in the so-called "memo of understanding" debacle when, after having spent week... [Read More]

Tracked on September 26, 2005 5:07 PM