FRANKFORT, Ky. (AP) - Democratic gubernatorial nominee Steve
Beshear's former law firm should have withdrawn more than a decade
ago as legal counsel on a mammoth corporate bankruptcy case to
avoid a conflict of interest, independent attorneys wrote in a
confidential report released Saturday.
Beshear, however, was not directly involved in the conflict,
according to the 90-page report, which was prepared 12 years ago
but kept under wraps until two newspapers sought its release.
The report, which looked into Stites & Harbison's work in the
bankruptcy of Kentucky Central Life Insurance Co., had become
political fodder in the race between Beshear and incumbent Gov.
The Cincinnati law firm of Porter, Wright, Morris & Arthur,
which compiled the report, concluded that neither Beshear nor any
other Stites & Harbison attorney working on the Kentucky Central
case were involved in or responsible for the conflict of interest.
"The report released today confirms what I have said all along,
that I have conducted myself in an ethical manner," Beshear said
Stites & Harbison released a statement Saturday saying the
report shows there was no basis for allegations of unethical
conduct on Beshear's part and that interest in the report has been
driven exclusively because of his campaign for governor.
The report looked into an alleged conflict of interest that
involved Stites & Harbison's representation of both the Kentucky
Office of Insurance and the Bank of Louisville in the bankruptcy of
Kentucky Central Life Insurance Co.
Beshear said the Office of Insurance and two judges on the case
had also "unanimously concluded that neither I or Stites &
Harbison had done anything wrong."
According to the report, an attorney in Stites & Harbison's
Louisville office advised the Bank of Louisville to sell $15
million worth of Kentucky Central securities. That prevented the
securities from being turned over to the Kentucky Office of
Insurance to be used to help revitalize the firm.
The move, according to the report, was "patently detrimental"
to efforts to "protect, reform and revitalize Kentucky Central."
Beshear worked in the firm's Lexington office, and, according to
the report, voiced disbelief when he learned of the conflict.
The Cincinnati law firm said Stites & Harbison could have been
discharged for breach of contract or kept on and held accountable
for any financial damages because of the conflict of interest.
Stites & Harbison has continued working on the case, and remains
the attorney for the Office of Insurance.
Fletcher spokesman Jason Keller maintained even after the report
was released that Beshear's actions led to the collapse of Kentucky
Central. Fletcher had previously made similar claims in campaign
"Steve Beshear's firm allowed $15 million to be taken out of
Kentucky Central, and Beshear knew this activity was under way at
Kentucky Central's most vulnerable time," Keller said. "Their
claims that nothing was improper ring hollow."
The report was released to the public Saturday afternoon at the
request of the Herald-Leader and The (Louisville) Courier-Journal,
which joined in a motion seeking its release.
Fletcher has been using the confidential report as campaign
fodder, claiming Beshear and his firm prospered from the bankruptcy
while thousands lost their savings.
Stites & Harbison has been paid $21 million over 15 years for
assisting in the liquidation of Kentucky Central, which owned
billions of dollars worth of life insurance policies before it went
bankrupt in the mid-1990s.
Beshear, who had favored the release of the report, said
Saturday that it refutes the Fletcher campaign's claims.
"It does point out very clearly that what Ernie Fletcher has
been saying across this state now for some time, that Stites &
Harbison's actions brought down Kentucky Central, are absolutely
false," Beshear said.
(Copyright 2007 by The Associated Press. All Rights Reserved.)