July 27, 2007

Bredesen Moves Qualifacts Out of Blind Trust

Financial disclosures signed by Tennessee Gov. Phil Bredesen indicate that, sometime in the past year, the governor moved Qualifacts Systems, a healthcare software company he founded before becoming governor, out of the "blind trust" in which most of his investments and business holdings have been managed since he became governor.

I found that information after reading an interesting story published a week ago in the Chattanooga Times-Free Press regarding the nonpartisan Center for Public Integrity giving Tennessee an "F" grade for failing to require its governor to disclose certain personal financial information, and was intrigued by a comment the governor made in the story.

Regular readers of BillHobbs.com may remember that last year I wrote a series of posts about the sudden resignation of then-TennCare director, J.D. Hickey, whom Bredesen had hired to run TennCare. Hickey resigned on short notice and became the CEO of Qualifacts. The governor's office never revealed the extent of Bredesen's role in Hickey's hiring at Qualifacts, but left the implication that Bredesen wasn't involved as Qualifacts was in a blind trust.

Spurred by emails from a company insider who told me - though I was unable to confirm it - that Bredesen had participated in at least one Qualifacts board meeting while serving as governor, I wrote a series of posts a year ago raising questions that the mainstream media had failed to ask regarding Hickey's sudden move to Qualifacts, seeking to determine what role, if any, did Bredesen play in Qualifacts' decision to hire Hickey, and whether Bredesen's holdings in Qualifacts, a privately-held company, really were in a blind trust. You can read those posts here:

We Need More Qualifacts - July 8, 2006,
Qualifacts Update: Damage Control - July 10, 2006,
Qualifacts Update: Tennessee Media Giving Bredesen a Pass - July 11, 2006,
Not-So-Blind Trust: The Qualifacts Mystery Deepens - September 13, 2006,

The coverage here clearly made the administration nervous, though they needn't have worried as the mainstream media moved on without digging further into the story.

Now comes the Chattanooga Times-Free Press report on the Center for Public Integrity's failing grade for Tennessee regarding disclosure requirements of its chief executive's business interests.

Center for Public Integrity officials said they flunked Tennessee and 20 other states that do not require disclosure of basic information that helps citizens track their governors' private financial interests and possible conflicts of interest.

Gov. Bredesen, a multimillionaire who accepts no state salary, said he has most of his assets in a blind trust. "I'm always willing to revisit it," he said of increasing disclosure standards. "I'm in a little bit of a unique situation in that I either have a blind trust or I don't. And if you have one, it's hard to disclose."

Gov. Bredesen's blind trust was created in 2002 as he prepared to become governor. In his April 16, 2007, statement of disclosure, he noted that investments held by him and his wife, Andrea Conte, are managed by Hirtle Callaghan & Co. and subject to the blind trust agreement. "We do not have knowledge of or influence over the retention, investment, re-investment or disposition of those assets," he states in the disclosure.

The governor said Wednesday that he has two holdings outside the blind trust. One is Qualifacts Systems Inc., a software company in which the governor is a majority stockholder. Last year he invited former TennCare director J.D. Hickey to run the company.

But Qualifacts was still in the blind trust as of April 2006, according to the disclosure Bredesen filed with the state on April 13, 2006. That disclosure indicates that his Qualifacts holdings were part of the investments managed in the blind trust:

Investments held by Andrea and me are managed by Hirtle Callaghan & Co. and subject to a "blind investment" agreement. Pursuant to that agreement, we do not have knowledge of or influence over the retention, investment, re-investment or disposition of those assets. The only asset managed by Hirtle Callaghan of which I have limited knowledge and which has been publicly disclosed previously is my interest in Qualifacts Systems, Inc. .. Outside the blind trust, I am the sole shareholder in Blue Canyon Inc...

In other words, as of April 2006, Bredesen's holdings in Qualifacts were in the blind trust, but by April 2007 he had moved them out of the blind trust.

Also, the Times-Free Press story appears to confirm that Bredesen made the hiring decision that moved Hickey from TennCare to Qualifacts.

In April 2006, Bredesen - while serving as your governor and running for re-election - moved his TennCare director over to run a company that Bredesen owns but which was, ostensibly, in a "blind trust" that allowed Bredesen no "influence" over it. The mind boggles at how selecting a company's new CEO doesn't count as "influence" over the company and its value as an investment.

The Center for Public Integrity is absolutely right to give Tennessee a failing grade.