HCA: What Did Frist Know and When Did He Know It?

While the Unknown Professor may have a more favorable view of how Andrew McCarthy interpreted this Wall Street Journal story than I did, I agree with his statement:

While a violation of insider trading laws requires a number of criteria to be met … at the minimum it requires that an insider initiate the trades due to his possession of “material non-public information”.

As Duncan Black checks out the Newsweek coverage, he adds:

It doesn’t matter how long before the official earnings announcement Frist asked to sell the stock, at least as long as it’s measured in months and not years. The only issue is whether he was illegally acting on inside information.

Duncan says he is a recovering economist and he sees my point, whereas the Unknown Professor is professor of finance and he seems to be siding with Mr. McCarthy. As I read the Unknown Professor’s comments under my post, I sense that I owe the readers of Angrybear a bit of an elaboration that starts with the recent history of HCA’s stock price, which the professor described as he took care of his two kids.

One key to this issue is did what did the insiders know when they sold their shares that the public did not know until just before the stock price dropped from around $55 to $50. As the title of my post was motivated by this Business Week article, the other question is when did they know it. If they knew of some material information that was not shared with the public until July back before April 29, then the Wall Street Journal story is not a defense for Senator Frist.

What I find interesting is the jump in HCA’s stock price from around $50 to $55 in early April. What piece of news drove that increase? Is this news in any way related to the disappointing information learned in July? For example, was there some potentially good news that was known by the public with some offsetting or qualifying information that only the insiders knew about until July? I’m sure the well trained economists at the SEC will be looking into such matters if political pressures don’t impede their inquiry, which of course, was the real point of the Newsweek article that Duncan criticized on one small point:

The SEC is trying to show politics won’t play into its scrutiny of a stock sale by Sen. Bill Frist. Easier said than done.

As I pose these questions, I’ll confess that I don’t know the answers to them. Given his interests in this topic and his ability to articulate how the principles of finance apply to such interesting real world discussions, I’m checking out the Unknown Professor’s blog more often.