Ky Gov, Big deal - small story

There's been a 12 year old story brewing in Kentucky and it broke last week.  I'm writing this not as an expert on the subject, but because no one else has done it.  In the end you'll probably agree that it's a whole lotta hot air, and not a lot of substance, but this is the story that Republican Governor Ernie Fletcher has been hoping would rescue his flailing campaign.

First, the players:

Ernie Fletcher, incumbent Governor (R)
Steve Beshear, Gubernatorial Candidate (D), former employee of Stites & Harbison assigned to the Ky Central case
Kentucky Central Life, Insurer who went bankrupt 12 years ago
Donald Stephens, former Insurance Commissioner who hired Stites & Harbison
Stites & Harbison (S & H), Law firm hired to handle Ky Central's legal woes
Frost & Jacobs, Law firm who won the bid to liquidate Ky Central
Larry Forgy, one-time Gubernatorial candidate (R), who worked for Frost & Jacobs during the liquidation
Bank of Louisville, lender to Ky Central and longtime client of Stites & Harbison
Judge Richard A. Revell, served as special master over the Kentucky Central issue
Porter, Wright, Morris & Arthur, Cincinnati law firm who produced the report 12 years ago

The gist of the saga is that while appointed by the insurance commissioner to handle Ky Central's case, Stites & Harbison also provided counsel to the Bank of Louisville, to whom was owed $15.6 Million by Ky Central, thereby creating a conflict of interest between their client and its creditor.  S & H had been retained by the Bank of Louisville years earlier when the loan was drafted.  When Ky Central defaulted, a couple of lawyers for S & H  prepared documents on behalf of Bank of Louisville to help the bank reclaim securities used as loan collateral. The implication is that because he was employed by S & H, Steve Beshear's involvement was unethical and he should have shared his knowledge about S & H helping Bank of Louisville with the insurance commissioner.

It's been determined that by providing additional counsel to the Bank of Louisville, S & H did nothing wrong in protecting itself against its earlier legal advice.

The Bank of Louisville successfully reclaimed and sold $15.6 Million in securities held by Ky Central.  This resulted in a lawsuit brought by Ky Central which was settled in 2002 for $22 $27 Million before Bank of Louisville could be acquired by BB&T.

Two years after the Bank of Louisville sold the securities, Insurance Commissioner Stephens hired Porter, Wright, Morris & Arthur who produced the now infamous 90 page report - kept under wraps until last week - that recommended S & H resign from the the case. Stephens and Judge Revell agreed that S & H should remain on the case.  Last week Judge Revell recalled:

"The thing I strongly remember was that Steve Beshear and others at Stites & Harbison were off the case for a while, but I recommended them come back on," he said. "I even ended up recommending an increased rate of $10 or $15 an hour."

Moreover, Beshear himself was not involved in the work provided for Bank of Louisville, nor did he provide information about Ky Central to the the Bank of Louisville.

The mountain being made out of this molehill is that at the time of the securities liquidation, the state was still trying to salvage Ky Central. Fletcher contends that the liquidation was like "taking the bottom card of a house of cards and watching it fall," even though Ky Central had more than $100 million in unsecured debt.

Why such a big deal?

If you've read this far, you may be wondering what the big deal is in rehashing a 12 year old legal affair in which Beshear was found to have done nothing wrong. The best answer to this is that it was the GOP's last ditch strategy to save Ernie Fletcher from a 20 point trouncing next month.  According to Page One Kentucky, Larry Forgy, who was employed by Frost & Jacobs during the Ky Central liquidation, has contacted more than one reporter during the last few weeks in an attempt to blow this out of proportion and gain some traction for the GOP.  Ironically, according to Bluegrassroots, Frost & Jacobs were actually sanctioned for doing a lousy job during the liquidation.

Bluegrassroots also notes in the 90 page report, linked via Bluegrass Report, that in Stites & Harbison's defense, they point to the "deposition of a deputy liquidator of Ky Central and a NKY Law Ethics Professor stating Goldberg and Simpson, not Stites, gave the advice to the Bank to sell." (my emphasis)

I believe the end result of all of this is a net loss for Fletcher, since the first thing that comes to mind when a Kentucky politician starts talking about ethics, insider favors, and wrongdoing, are the 29 indictments against the Fletcher administration's merit-based hiring (or firing as the case may be) and the Governor's subsequent pardons.

Update: I just saw a Fletcher ad where they stress how Beshear was taken off the Ky Central case. As already noted, this was only temporary and Judge Revell (a Fletcher supporter) actually recommended a raise for his services at Stites & Harbison.

•  Tip Jar

  It's also notable that Judge Revell, who determined that Beshear had done nothing wrong, is a Fletcher supporter.  It's refreshing to see a story in which ethics trumps political affiliations.

  by winstnsmth on Mon Oct 08, 2007 at 02:18:52 PM PDT

•  So what are they accusing Beshear of doing

  to make a long story short? Any new polling numbers?

  by oceanstar17 on Mon Oct 08, 2007 at 02:23:36 PM PDT

  •  As best I can tell ...

    Their angle was to accuse Beshear of assisting the Bank of Louisville in recovering and selling the securities, at the same time that he was assigned by S & H to handle the Ky Central case.

    Since he had no direct involvement with the Bank of Louisville, and had only a general idea of what S & H was doing for them, the next level of accusation is that he ought to have come forward and reported the conflict to the insurance commissioner.  But S & H didn't even give the advice to sell. S & H was merely consulting their client regarding the agreement that was formed when the loan was entered.

    No polling numbers as of yet, I don't predict a bump in either direction really.

    by winstnsmth on Mon Oct 08, 2007 at 02:33:52 PM PDT

•  surprisingly interesting digest

  thanks for taking the trouble to write it and to write it so clearly.

  by Christopher Walker on Mon Oct 08, 2007 at 02:42:32 PM PDT

  •  Thanks, it wasn't easy

    When I woke up this morning and decided this story needed to be blogged, I really didn't know what it was all about other than the GOP wanted it to look bad for Beshear.

    There's also a side-story about the Lexington Herald-Leader's coverage, reporter Ryan Alessi conveniently forgets to mention that Beshear was found to have done no wrong.

    by winstnsmth on Mon Oct 08, 2007 at 02:45:54 PM PDT

•  It's all telling...

  when you need a key to describe the players before you read the story.

  I think your diary is well written. Thank you.  Yet I have to say -- and this is not directed at you -- that I'm too overwhelmed to "follow the money" so to speak.  It's like going to school to learn new subject matter, where there will be a multiple choice test at the end.

  It seems that almost every republican scandal (not the sex scandals, though) require an in depth reading and comprehension of the trails to the violations.

  Whatever happened to the good old John Smith took a bribe from Bill Jones and now he's going to jail story?  I unfairly describe repubs as not as intelligent as others, but it looks like I've not given them enough credit when it comes to deception and crimes.  Their intelligence is impeccable... they sure know how to cheat, steal and lie.

  by gooderservice on Mon Oct 08, 2007 at 02:43:39 PM PDT

  •  Follow the Money ...

    You raise an interesting point which confounded bluegrassroots for a while. What happened to the money? $15.6 million in securities was liquidated, that much is known, but where the money went is a matter of speculation.

    by winstnsmth on Mon Oct 08, 2007 at 02:47:56 PM PDT

•  Here's my take on the story

  over at BlueGrassRoots:

  A MediaCzech estimation:

  % of registered who will vote= 40%

  % of those 40 who understand the Kentucky Central issue= 40%

  % of those 40 who care about the Kentucky Central is issue= 20%

  % of those 20 who are currently in the Beshear camp= 10%

  % of those 10 who will switch their votes to Fletcher= 5%

  The result? This is a NON-ISSUE.

  However:

  % of Herald-Leader issues in the next month that will have Kentucky Central as the lead political story (or featured prominently within it)= 90+%

  % of Herald-Leader issues in the next month that will explain how Kentucky ranks amongst the worst in the nation in health care and education and how the policies of the 2 candidates will address these problems= -5% (and that's being GENEROUS)

  No matter how much the campaigns focus on non-issue topics (and one campaign ONLY does this), it is the role of the media to cover the issues that are of most importance to Kentuckians, such as our access to  adequate health care and quality jobs. There's no problem trying to look into Kentucky Central, but enough is enough. The amount of ink that has been wasted on this issue that nobody cares about is obscene. Instead of grilling candidates about obscure details of legal matters from 15 years ago, as Loony Larry would prefer you do, how about grilling them on details for how they will bring economic growth and health care to rural Kentuckians?

  That, of course, is completely idealistic. The horse race and the scandal are lifeblood of the mainstream media, and Kentucky is not exempt from this.

  Maybe some day.

  Winston, what do you comment as in KY?

  by cubswin39 on Mon Oct 08, 2007 at 03:22:10 PM PDT

  •  I was waiting for you to join in

    Though I hadn't read that take on it yet.  I like how you cut to the heart of the matter.  I think KY political blogs (now that there's more than just one) are starting to have a real impact.

    I don't post much on the local forums though, but when I do it's as winstnsmth.  I think you and I have traded emails recently in connection with Ditch Mitch.

    by winstnsmth on Mon Oct 08, 2007 at 03:58:53 PM PDT

    •  register at BGR!

      we have a diary section, join the crowd!

      by cubswin39 on Mon Oct 08, 2007 at 10:16:11 PM PDT

•  Fletcher

  If this is the best that Fletcher can muster four weeks before the election . . . .

  by hilltopper on Mon Oct 08, 2007 at 04:06:22 PM PDT