No Blind Eye for HCA Stock Sales

HCA (HCA Quote - Cramer on HCA - Stock Picks) is paying a price for its political ties.

The giant hospital chain is being questioned by the Justice Department about stock sales carried out by Sen. Bill Frist. The Tennessee Republican, who belongs to the family that founded HCA, reportedly sold all his HCA shares shortly before the company warned in July that its numbers would fall short of Wall Street expectations. HCA insiders including President Richard Bracken were selling stock then, too.

Bob Stevenson, a spokesman for Frist's office, told The Wall Street Journal that the Senate majority leader had "no information about the company or its performance that was not available to the public" at the time of the transaction. Moreover, he stressed that Frist relies on a blind trust to manage his investments. Still, Stevenson also conceded that Frist personally asked the trust in mid-June to sell off his HCA holdings and then left the trust in charge of carrying out those orders.

But Massachusetts investment strategist Peter Cohan says blind trusts don't normally operate that way. Indeed, he questions how blind a trust can really be with an investor like Frist calling any shots at all.

"This suggests that Frist really wasn't as independent of the trust as you would think he should be," says Cohan, who has no position in the stock. "Then that raises the question of what Frist knew when he decided to sell. ... It seems like there is enough smoke here to suggest there could be a fire."

So far, however, investors smell no trouble. They actually pushed shares of HCA up 1.8% to $46.71 despite Friday's announcement of the probe.

Selling Season

HCA stock hit a 52-week high of $58.60 on June 22. It then began to slide before dropping almost 10% the day HCA issued its profit warning.

By then, HCA insiders had been unloading some stock as well. For example, Bracken carried out a big options transaction -- which netted him $1.38 million -- just a week before Frist reportedly told his trust to exit the stock. CFO Richard Shallcross, along with a slew of other officers, sold stock around then too.

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