Sept. 23 (Bloomberg) -- The U.S. Securities and Exchange Commission and the Justice Department are investigating Senate Majority Leader Bill Frist's order to sell all his shares of HCA Inc. a month before the price dropped on news of weaker-than- expected earnings, Frist's office said.

The SEC ``contacted Senator Frist's office after the story appeared in the press about the sale,'' spokesman Bob Stevenson said in a statement. Stevenson said later today that the U.S. attorney general in Manhattan also inquired about the stock sale. HCA, the biggest U.S. Hospital chain said it had received a subpoena from the Justice Department and ``intends to cooperate fully.''

The twin probes threaten to overshadow a possible 2008 presidential bid by Frist, said Tom Mann, a congressional scholar at the Brookings Institution in Washington. If the complaints are examined and dropped that would clear up the matter and remove it as an obstacle to a candidacy, Mann said. Any finding that the sale of shares was improper could doom Frist's political aspirations, he said.

`Devastating'

``Any hint that he did something wrong would be devastating,'' Mann said.

The probes into Frist's stock sales are a historical first, said Senate Associate Historian Donald Ritchie, because no congressional leader has ever faced a federal investigation of stock sales.

``I don't know that there is anything comparable,'' Ritchie said. He said former president and Senate Majority Leader Lyndon Johnson faced questions about receipt of gifts and other financial dealings that occurred during his tenure as a Senate leader from 1955 to 1960.

Frist told trustees managing his blind trust assets to divest HCA stocks on June 13, one month before the company said second-quarter profit would miss earnings estimates and the share price fell almost 15 percent after a 52-week increase of 47.1 percent to a high of $58.60 on June 22.

``Senator Frist had no information about the company or its performance that was not available to the public when he directed the trustees to sell the HCA stock,'' Stevenson, the Frist spokesman, said in a statement today. Spokeswoman Amy Call said this week that decided to sell the HCA shares after outside interest groups repeatedly suggested his stake in the company represented a potential conflict of interest.

$5 Million to $25 Million

The value of HCA stock in Frist's trusts at the end of 2000 was between $5 million and $25 million, according to a disclosure he filed with the Senate ethics committee when he established the accounts. HCA was by far his largest holding. The next largest was American Retirement Corp. stock, with holdings of about $250,000 to $500,000, followed by General Electric Co, with holdings between $100,000 and $250,000 and Enron Corp., with holdings between $50,000 and $100,000.

The SEC's investigators typically ask individuals to voluntarily provide information about seemingly suspicious stock sales, and in many instances conclude quickly that there's no basis to seek a formal order from the agency's commissioners authorizing a more intrusive investigation, said Donald Langevoort, a former SEC lawyer and now a law professor at Georgetown University in Washington.

Ethics Committee

The Senate ethics committee allows lawmakers to direct the trustees of blind trusts to sell all of the shares of a company. Lawmakers may do so if they determine that holding the stock either creates a conflict of interest or the appearance of one, ``due to the subsequent assumption of duties'' by the lawmaker, according to a copy of the rules posted on the panel's Web site.

Fred Wertheimer, president of the Washington-based watchdog group Democracy 21, said he thinks it would be appropriate for the Senate ethics committee to examine whether Frist could utilize the exemption since he assumed his majority leader job three years ago. He said his group hasn't decided whether to file a complaint with the panel.

Frist's sale raises broader questions about the viability of Senate ethics rules that allow senators to have some control over their blind trusts, said Larry Noble, executive director of the Center for Responsive Politics.

On the one hand, he said, it is be beneficial to the public interest for lawmakers to divest themselves of holdings that could present a conflict of interest. On the other hand, allowing wholesale divestitures of a stock also ``undercuts'' the notion that lawmakers with the trusts wouldn't control their holdings.

``It's something that should be addressed,'' Noble said. Herb Hadad, a spokesman for U.S. Attorney Michael Garcia, and SEC spokesman John Nester declined to comment about the investigations.

Father and Brother

Thomas Frist, the senator's father, and the senator's brother, Thomas Frist Jr., founded HCA in 1968 along with Jack Massey, the former owner of Kentucky Fried Chicken. Thomas Frist Jr., who stepped down as chairman of the company in 2002, still serves on the company's board of directors.

Trained in cardiothoracic surgery at Massachusetts General Hospital, Frist worked for the Nashville Veterans Administration Hospital for seven years, beginning in 1986 and joined the faculty at Vanderbilt University Medical Center in 1985, where founded and became surgical director of the multi-organ Vanderbilt Transplant Center.

Frist, 53, ranked as the sixth richest among 94 U.S. senators last year, according to financial disclosure forms released by the Senate in June. Frist had assets in 2004 valued between $15.4 million and $45.15 million.

Majority Leader in 2002

Frist is paid $180,100 a year in his Senate job. A graduate of Princeton University and Harvard University Medical School, Frist was elected to the Senate in 1994 by defeating incumbent James Sasser, a Democrat. He became majority leader in late 2002.

In 2003, HCA concluded several government investigations that began in 1997 into its business practices. In the five years ended in 2003, HCA paid about $2 billion in settlements for Medicare fraud and other claims, according to Hoover's.

The company allegedly took doctors on free hunting trips to Venezuela and Mexico, paid them for sham medical directorships and recruited doctors based on how many patients they had. The government also said HCA billed Medicare for costs in a 1987 spinoff that occurred when Thomas Frist ran the company.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net.

Last Updated: September 23, 2005 16:56 EDT