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.