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Florida once sued would-be Gov. Rick Scott, accusing him of insider trading

Rick Scott wants to be governor of a state that once filed suit accusing him of 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 civil 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, a judge dismissed the insider trading complaint without trial, but an appeals court said there was a chance that Scott should have known "of the arrangements that allegedly violated health care laws and regulations."

The Florida civil suit, which was separate from the federal investigation of Columbia/HCA that led to $1.7 billion in fines, was filed in Tennessee state court. It was shelved in favor of a larger federal case that leveled many of the same claims. The list of defendants in the federal case also included Scott, who had been forced out as the company's chief executive on July 25, 1997, about two weeks before the civil actions were filed.

The suit was settled six years later for about $14 million. Scott was never criminally charged.

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

In this gubernatorial campaign, the scandal at Columbia/HCA and the State Board of Administration's management of its investments have become key 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's investment portfolio lost millions while she's been on the SBA.

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 federal suit never went to trial. At one point, a federal judge threw it out. An appeals court reinstated much of the case, but not the claims related to insider trading.

According to the suits, Scott owned 9.4 million shares of Columbia/HCA. He had sold 128,000 shares from 1995 to 1997, including 90,000 on a single day, Feb. 25, 1997. That $2.65 million payday was flagged by plaintiffs, who noted the sale came 23 days before federal agents raided Columbia/HCA offices as part of a long-term investigation.

Did company officials know ahead of time that the chain was headed for trouble?

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

The newspaper wrote 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 Columbia/HCA board members, 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 percent to 20 percent growth in Medicare reimbursement — 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."

Times/Herald staff writer Mary Ellen Klas contributed to this report.

This story has been changed to reflect the following correction: Rick Scott sold 90,000 shares of Columbia/HCA stock on a single day in February 1997. This story previously reported another year.

Florida once sued would-be Gov. Rick Scott, accusing him of insider trading 10/14/10 [Last modified: Wednesday, October 20, 2010 10:21am]
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