- The Washington Times - Monday, October 3, 2005

Rules don’t go

far enough to

limit conflicts,

watchdogs say

Senate Majority Leader Bill Frist, under investigation for directing trustees of his blind trust to sell holdings in HCA Inc., has cited Senate rules in his defense, saying he had acted “above and beyond anything required.”

That’s the problem, according to ethics watchdogs.

Those rules don’t go far enough to eliminate conflicts of interest, they say. The Frist case demonstrates how lawmakers may know the content of their blind trusts, are alerted of changes in their portfolios, and aren’t required to divest any of their holdings the way executive-branch officials often are, they say.

“It’s cosmetic only,” said Kenneth Gross, an ethics attorney with Skadden, Arps in Washington who advises lawmakers from both parties. “It doesn’t avoid a conflict of interest if you put $100 million in stock in a trust. And this has dogged Frist because everyone assumed, correctly, that he still held this stock.”

Mr. Frist, Tennessee Republican, is one of 18 senators who have blind trusts that have been reviewed and approved by the Senate ethics committee. The remaining 82 senators disclose their financial holdings annually.

Mr. Frist faces inquiries from the Justice Department and the Securities and Exchange Commission into the sale of the Hospital Corporation of America (HCA) shares in his trust. HCA, the nation’s biggest hospital chain, was founded by Mr. Frist’s father and brother.

Mr. Frist ordered trustees to sell his HCA shares June 13, a month before the Nashville, Tenn., company said its second-quarter earnings would fail to meet analysts’ estimates. The trustees informed Mr. Frist on July 1 that the shares had been sold. When HCA disclosed the news about its earnings July 13, the stock fell $4.86 to $50.05, its biggest decline in more than two years. During the two-week period when Mr. Frist’s sale occurred, the shares averaged $57.21, reaching a 52-week high of $58.60 June 22.

The senator said he ordered the sale to remove any possibility of conflict of interest on health care policy, and in April asked aides to consult with outside counsel and ethics committee staff to ensure the rules permitted him to direct the sale. He said they found the sale was allowed.

“I acted properly,” Mr. Frist told reporters last week in Washington. “I had no information about HCA or its performance that was not publicly available.”

Watchdogs complain that rules governing blind trusts for lawmakers are less rigid than in the executive branch, allowing lawmakers themselves to determine whether they have conflicts and whether to take action to eliminate them.

The 1978 Ethics in Government Act set up the definition of a “qualified blind trust” for government officials and directed each branch of government to establish and enforce its own rules, said Jan Baran, a lawyer at Wiley Rein & Fielding in Washington.

Executive-branch nominees who face Senate confirmation must submit to an examination of their investments by their agency and by the Office of Government Ethics, which recommends ways to avoid conflicts of interest, said Craig Holman, an ethics lobbyist for the watchdog Public Citizen. The recommendations can include divestiture of stock, establishment of a blind trust or recusal from some decisions, Mr. Holman said.

According to Office of Government Ethics rules, when an executive-branch official sets up a qualified blind trust, the trustee is required to sell all shares that present a conflict of interest or bring the value of the holding to less than $1,000. There is no such rule for lawmakers.

“The Senate ethics rules are so weak that a senator is not required to set up a blind trust if there is a conflict of interest,” Mr. Holman said.

Watchdogs say they are concerned about a provision that allows senators to direct trustees to sell all shares of a particular stock if the lawmaker assumes new duties that could present a conflict of interest.

“If you’re offering advice to your trustee, that’s not a blind trust,” Mr. Holman said.

Some ethics lawyers who advise lawmakers say the rules do little to shield their clients from the appearance of conflict. They say that is especially true in cases in which politicians’ assets are concentrated in shares in a single company, such as Mr. Frist, who reported owning between $5 million and $25 million in HCA shares when he set up his trust in 2000.

Of the 18 senators with blind trusts, 12 are Democrats and six are Republicans. Only four trusts have reported transactions since 2000: Mr. Frist’s and those of Democrat Sens. Frank R. Lautenberg of New Jersey, Edward M. Kennedy of Massachusetts and Herb Kohl of Wisconsin.

Before the sale of HCA stock, Mr. Frist’s blind trust notified him on six occasions that it was liquidating other holdings in his portfolio. They included shares of his second-largest holding, American Retirement Corp., and others such as AMR Corp., Shoney’s Inc. and Duck Head Apparel Co., now a subsidiary of Tropical Sportswear International Corp.

Other senators with blind trusts include Democrats Hillary Rodham Clinton of New York, John D. Rockefeller IV of West Virginia, John Kerry of Massachusetts, and Dianne Feinstein and Barbara Boxer, both of California; and Republicans John McCain of Arizona, Ted Stevens of Alaska and Sam Brownback of Kansas.

The Senate ethics rules, set up after passage of the 1978 law, didn’t anticipate the chamber would have so many millionaires with potential conflicts, said Celia Wexler, vice president for advocacy at Common Cause, a Washington watchdog. Today, 45 of the 100 senators have assets of more than $1 million, records show.

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