GOP Chairman Wants State To Terminate Beshear's Former Law Firm

FRANKFORT, Ky. (AP) - The state GOP chairman wants the Office of
Insurance to terminate the contract of a Lexington law firm that
has represented the state agency for more than a decade in the
bankruptcy of Kentucky Central Life Insurance Co.

Steve Robertson said he believes the action is warranted in
light of a report publicly released on Saturday alleging that the
firm, Stites & Haribson, had a conflict of interest that was
"patently detrimental" to reviving the struggling company when it
went into bankruptcy.

Kentucky Central's bankruptcy has become a political issue in
the governor's race. The Democratic nominee, Steve Beshear, worked
for Stites & Harbison on the case. Republican Gov. Ernie Fletcher
claims that Beshear and the firm caused Kentucky Central to
collapse.

"I think they should be let go," Robertson told reporters at a
news conference Tuesday.

Julie McPeak, executive director of the Office of Insurance,
didn't rule out that possibility Tuesday evening.

"At this point, I'm leaving all of my options open," McPeak
said. "You know, I didn't have any knowledge of the report until
just recently. So I'm intentionally taking my time, to proceed with
caution, to ensure that all possible claims against all parties in
this are preserved."

Stites & Harbison Chairman Kennedy Helm III said his firm has
served honorably on the Kentucky Central case for 15 years.

"We are going to continue doing our job as long as we are
engaged," he said.

Independent attorneys who prepared the confidential report on
the Kentucky Central case said Stites & Harbison should have
withdrawn more than a decade ago as legal counsel on the mammoth
corporate bankruptcy case because of the conflict of interest.

At issue was an allegation that Stites & Harbison was
representing both the Office and Insurance and the Bank of
Louisville in the case.

The report said Beshear had no "actual knowledge" but that he
did have "general knowledge" about advice Stites & Harbison was
giving to the Bank of Louisville and that he should have turned it
over to former Insurance Commissioner Donald Stephens. Stephens was
heading up the Kentucky Central case.

The report prepared by the Cincinnati law firm of Porter,
Wright, Morris & Arthur was kept confidential until the
Herald-Leader and The Courier-Journal went to court to seek its
release.

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 Office of Insurance to be
used to help revitalize the firm.

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.


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