Leader Blues

Wednesday, October 05, 2005

EDITORIAL >> Sen. Frist insists he knew nothing

The word is “beware and don’t engage in this type of conduct because it will not be tolerated,” David Kelley, U.S. attorney for the Southern District of New York, said outside the courthouse after Martha Stewart was convicted of obstructing justice and lying to investigators about dumping stock before it tanked.
“This is a victory for the little guys. No one is above the law.” Those were the words of one of the Martha Stewart jurors.

We remember those prophetic words because we wondered at the time, what planet are they on?
If they are big enough, corporate crooks usually do not pay for their crimes or at least pay very dearly. Bigger crooks than Martha Stewart, who really didn’t profit in the long run for her shallow treachery, are still running free.

Now comes Sen. Bill Frist of Tennessee, the majority leader of the U. S. Senate and a likely applicant for the presidency next year, who insists like Martha Stewart that he knew nothing — nothing!— about the impending collapse of the family company’s stock before he dumped it last month for a nice fortune.
Neither his brother nor anyone else told him a thing about the impending financial report that would cause the stock to tank, Majority Leader Frist said.

If he had a hint of what was coming, Frist would be subject to big criminal and civil penalties for using insider knowledge.
Be assured that the Securities and Exchange Commission is investigating.
Frist explained that since he might run for another office he decided that it might look better if he did not hold a giant bundle of stock in HCA, the health-care company founded by his father, since the company is affected by so much federal legislation and other decisions by the government.

The conflict just happened to strike him by coincidence a few days before the stock would take its inevitable tumble, although the conflict of interest had existed from the moment he went to the Senate.
Only two years ago, Frist maintained that he did not know if he owned any HCA stock since all his holdings were in a blind trust. He found out that he owned them apparently just as the stock was about to tank.
Martha Stewart avoided a potential loss of about $51,000 by selling her stock in Imclone a day before regulators rejected the company’s application for approval of a new cancer drug.
The stock took a big tumble but recovered.

The drug was later approved. Her story about not having insider knowledge wilted when a broker said he passed along knowledge of insider stock sales to her broker.
Frist will not be so unlucky.

But the SEC must investigate. Presi-dent Bush’s new SEC director, former Congressman Christopher Cox, says he will remove himself from supervising the investigation of his friend.
There, do you feel confident that an independent and fearless inquiry is under way?
We cannot help but remember when young George W. Bush, a director and member of the audit committee at the energy company Harken, dumped his 212,140 shares of Harken stock for $848,000 in 1990 just before the company disclosed a huge quarterly loss, causing its stock to plunge.

The future president did not report his transaction to the SEC, which was controlled by his dad, for 34 weeks, a violation of the law. He would later explain that the SEC must have lost the forms that he had filed.
Ten years later, his spokesman admitted that was a lie and that the failure to report his stock sale had been caused by a “mixup” with his attorneys.

The SEC investigation concluded at the time that it couldn’t conclude if the president’s son knew anything when he unloaded his stock and that it was best for all concerned to just drop the matter.
Make your own prediction about how the investigation of Bill Frist will turn out.