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State once sued Rick Scott for insider trading, court raised questions about what he knew

Rick Scott wants to be governor of a state that once sued him for insider trading.

In 1997, as the FBI unleashed a massive criminal investigation of Scott's hospital chain, Florida's State Board of Administration filed a lawsuit accusing Scott and his fellow hospital directors of profiting from a culture of corruption and selling stock 23 days before federal agents raided the company's offices in Texas.

Ultimately, the insider trading charge was dismissed by a judge without trial, but not before an appeals court said that there was a chance that Scott  should have known "of the arrangements that allegedly violated health care laws and regulations."

Florida's case, filed in Tennessee state court, was shelved as a bigger federal suit against Scott and 10 other Columbia/HCA officials proceeded involving numerous other state pension funds.

That larger case, which was separate from the federal investigation of Columbia/HCA that led to $1.7 billion in fines, leveled many of the same claims as the Florida state suit. Its list of defendants also included Scott, who had been forced out as the company's CEO on July 25, 1997, about two weeks before the suits were filed.

Six years later, the federal case was settled for about $14 million but because it never went to trial the questions of whether Scott knew of the fraud were never answered.

The old lawsuits, which the Herald/Times obtained Thursday as part of a state public records request, add another detail to the governor's race between Scott, a Republican, and Florida's Chief Financial Officer Alex Sink, a Democrat.

The scandal at Columbia/HCA and the State Board of Administration's management of its investments have become key campaign issues. Sink uses the hospital chain's woes to paint Scott as unethical. Scott says Sink has wasted her chance to protect state money, pointing out Florida' investment portfolio lost millions under Sink's watch. Scott also notes that Sink sat on the board of a Tampa-based call center in 2000 when the state sued the company for stock losses.

"Alex Sink's campaign is now pushing this story and it shows how desperate she is to muddy the waters about her own failures as CFO,'' Scott spokesman Brian Burgess said.

Sink's campaign spokesman Dan McLaughlin hit back at Scott, saying the lawsuit is "another example of Rick Scott avoiding having to answer for a long pattern of fraudulent and unethical business practices....he must answer whether he got an insider advantage."

The case itself never went to trial. At one point, a federal judge threw the whole case out but an appeals court reinstated much of the case, but not the insider trading claims.

According to the evidence presented in the lower court, Scott and his colleague, Thomas Frist, were active in the company's mergers and acquisitions operations. The appelate court said in its 2001 ruling that while there was "nothing improper or illegal per se about either 'expansion by acquisition'...the participation of Scott and Frist implies knowledge of the arrangements that allegedly violated health care laws and regulations.''

The lawsuit by Florida's pension fund and the larger suit of shareholders from other states alleged that Scott owned 9.4 million shares of Columbia/HCA. He had sold 128,000 shares from 1995 to 1997, including 90,000 on one day in February 1995.That $2.65 million payday was flagged by plaintiffs, who noted the sale came 23 days before Columbia/HCA offices were raided by federal agents as part of a long-term investigation.

A week after the hospital offices were raided, the New York Times published a "special report'' detailing Medicare and Medicaid violations after a yearlong examination of more than 30 billion billing records from the company.

The federal investigation ultimately led to the $1.7 billion federal fine, which Columbia/HCA agreed to pay. When the company's stock value dropped, shareholders who had lost millions sued, claiming that the directors violated their fiduciary duty and should have known the company's billing practices would have violated federal Medicare laws. 

The Times reported that its reporters did not give the company an opportunity to review its data, but had provided company officials with its findings over a period of several months.

The appellate court said there was not enough evidence to support an insider trading complaint. But, it concluded, that the members of the Columbia/HCA board, many of whom had experience running other hospitals, could have known that the goals Scott set out for the chain's hospitals -- achieving a 15- to 20 percent growth in reimbursement from Medicare -- would have been unrealistic. As a result of those profit targets, critics say, the company helped encourage fraud that ultimately led to the federal investigation.

The court found that the facts "are sufficient to create a reasonable doubt'' that "at least five of Columbia's directors, including Scott,'' should have known their actions could have drawn a federal investigation, the court wrote in its opinion.

The facts, the court said, "presented a substantial likelihood of director liability for intentional or reckless breach of the duty of care.''

Scott, who was never charged with a crime, has said that he should have hired more auditors to flag the practices that led to the charges against his company. But, since the case never went to trial, it was never determined how much he or other company executives knew.

Comments

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Paul D. Harvill

In Florida if you plead the 5th Amendment in a civil trial those pleas can be used as evidence of guilt in the civil trial.

The 5th Amendment prohibits the pleas from being used in a criminal proceeding, not civilly. So, it would be fair game for a plaintiff’s attorney to argue that those are evidence of Scott’s guilt.

Rick Scott’s company having to pay a $1,700,000,000 fine was his only way to stay out of a
very long federal prison sentence.

And if he did not know about the corruption in his own company as CEO, then he is a very poor executive officer and thus is not qualified to be Florida’s next governor.
If you vote for him, then how do you explain to your spouses, relatives, loved ones, friends and strangers why you voted for a mega-crook and/or lousy executive?

How can you be an ethical Republican and still vote for him?

How come a majority of supposedly moral and ethical Republicans choose him as their candidate?

What does all this mean for Florida’s future?

Certainly not anything good.

Corruption breeds corruption.

Incompetence breeds incompetence.

Has the Republican Party of Florida become that corrupt? That incompetent?

Rick Scott pleading the 5th Amendment against self-incrimination 75 times.

That shows that he’s both a mega-crook, a mega-incompetent and worse.

John Adams

Rick Scott is creepy and scum...how much corruption and scandal can one man be involved in? It keeps coming, and Jeb Bush is always so close by. Folks, please do the right thing and not support this crook and liar. Florida will be a laughing stock. And you got to know there is a lot more skeletons in the closet that we don't know. It is just incomprehensible that this man is not in prison and even more insane that he is the republican candidate for Governor.

llivraH D. luaP

Paul D. Harvill is an uninformed idiot. Rick Scott wanted to fight the charges, his board did not. They parted ways. Years later, Columbia/HCA settled and paid the fine.

It's amazing how the liberals such as Mr. Harvill and Ms. Klas continue to push this issue. If top-notch investigators haven't been able to find anything to charge Rick Scott with at Columbia/HCA, or Solantic, or in some insider trading deal; maybe he hasn't done anything. Or, maybe our state and federal investigators are complete morons.

Take your pick Paul D. Harvill.

Sheila

Paul D. Harvill's information seems accurate llivraH D. luaP.

Maggie Mahar's book called Money Driven Medicine tells exactly what is wrong with Rick Scott. He does have a problem and he will be all of our problem once he is governor and starts firing state employees and embezzling cash for his mother.

Maggie Mahar lays much of the blame for Columbia/HCA's illegal acts at Scott's feet. He cultivated a corporate culture where profit was the most important thing, and, as she put it in her book, "executive salaries hinged not on such criteria as reducing infections or lowering death rates, but on meeting financial targets like 'growth in admissions and surgery cases."

Rick Scott and his cost cutting at Columbia/HCA impacted healthcare at his hospitals. Mahar said, “One technician complained of having to watch 72 heart monitors at one time. Nurses at an Indianapolis hospital complained to state authorities that babies in the neonatal unit were left unattended for up to three hours. In one case a nurse caring for seven infants was so busy she failed to hear an alarm when a baby stopped breathing; the child was saved when a parent rushed in. The state fined the hospital.”

Leticia

Amazing Mr Scott is a fighter who pleads the fifth?

Cori

wow!!!!!!$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$3$$$3$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Rick Scott: Please say,I am not a crook!!!!!!!

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