Thursday, October 13, 2005
A Washington Post story (here) discloses that the SEC sent a subpoena to Senate Majority Leader Bill Frist for documents related to the sale of HCA Inc. stock from the so-called "blind trusts" that held shares on behalf of the Senator and his family. The sales took place in late June, and a short time later the company disclosed a revenue shortfall that caused its stock to drop more than 10%, and the SEC investigation is focusing on possible insider trading by a number of HCA executives in advance of that announcement. While one can draw the impression from the story that the Commission issued the subpoena in just the past few days, which might signal a new direction in the case, in fact the article notes that the subpoena was sent out at some time in the past two weeks. The Commission issued a formal order of investigation at the start of the case, so the subpoena would likely have been issued to Senator Frist early on. Moreover, once the Enforcement Division staff has the power to compel the production of documents, they will use subpoenas rather than voluntary requests for documents.
I doubt much should be drawn from the fact that the Senator received a subpoena because, most likely, so did everyone else involved in the inquiry, including HCA and any financial institutions through which the shares were traded. At this stage, the SEC is most likely just sorting through the records it has received, and preparing to take the testimony of witnesses (including Senator Frist) under oath. Whether the case advances past the investigative phase depends on what is revealed by the documents and depositions, a process that will take quite a while. (ph)