Tuesday, 25 September 2007
Murkiness Surrounds Beshear with Regards to Kentucky Central
The Kentucky Central fiasco is a complex and involved story of potential fraud involving Bank of Louisville. Stites and Harbison, and Kentucky Central. I will try to sum up the case as best I can and then ask the pertinent questions.
In 1989 Dudley Web was looking for a 13.5 million dollar loan from the Bank of Louisville. Since Web didn't have sufficient equity for the loan, the Bank of Louisville required a third party to provide the equity. Kentucky Central became the third party in this deal. (This deal in itself was illegal because insurance companies are forbidden from having real estate investments that are subject to mortgages. But that is another matter.) On September 15, 1989 the Bank of Louisville provides a loan to the Dudley for 13.5 million dollars while Kentucky Central pledged securities to secure the loan.
In 1992 all of the parties agreed to extended the debt to June 1, 1994. Shortly after Kentucky Central began to run into financial troubles. The financial problems became so bad that on Feb 12, 1993 the court appointed Insurance Commissioner Don Stephens as rehabilitator. This position placed Stephens in control of all assets, properties, books, accounts, etc of Kentucky Central. Of course the commissioner was never made aware that securities were held by the Bank of Louisville.
On March 9th, 1993 Kentucky Central Life employs Sites and Harbison to provide legal council to assist in the rehabilitation process. Beshear was one of the attorney's assigned to this case.
On May 4th, 1993 Stites law firm held a conference call with the Bank of Louisville. The Bank of Louisville faxes to Stites an Irrevocable Power of Transfer form. The next day, Stite's partners, Vance and Joeseph, meet with Beshear to discuss the Bank of Louisville's Stockpowers.
On the 6th of May, Vance and Joseph meet about approval for $8 million of Kentucky Central's securities that are held by the Government National Mortgage Association. The same day Vance contacts the GMNA about th e process. On the 10th, Vance seeks authorization from the GNMA to move the securities without having to use a PD 1832 form which he claimed was not feasible to obtain. Instead they wanted to use the Bank of Louisville officer's "Irrevocable Power of Transfer" exception. Hidden from the GMNA was that fact that the infeasibility to obtain the PD 1832 was due to the fact that such an action would have tipped off Stephens, the rehabilitator, to these funds. Knowing about transaction, Stephens would have put a stop to the sale of security funds.
On May 17th Joseph has a conference call with the Bank of Louisville. Shortly after the Bank of Louisville informs Kentucky Central that the securities have fallen below the minimum value necessary and asks for payment on the difference. On the 18th the GNMA balks at the proposed sale and calls in their general council.
10 days later Beshear is involved in a phone conference with Bank of Louisville officers. A few days afterwards on June 1st, Vance has a phone conference with the GNMA and the GNMA grants permission for the Irrevocable Power of Transfer exception.
Things are ready a week later when Vance holds a second phone conference with GNMA. Afterwards, he sends a letter to the transfer agent, Chemical Bank, describing the steps necessary for a transfer of securities.
Over the next several days Stites and Harbison engages in multiple conference calls with the Bank of Louisville. By the 18th of June the securities are re-registered from Kentucky Central to the Bank of Louisville. By the 23rd the securities were sold and money applied to the loan made to Dudley Web even though the note wasn't due for another year!!! On top of that Kentucky Central did not even retain ownership of the the properties because Web didn't have to transfer them.
In the first half of July, Beshear is confronted by Kentucky Central but denies involvement in the actions. On July 19th, Michael Cuscaden the special deputy rehabilitator sends a letter to the Bank of Louisville requesting a return of Kentucky Central's securities since they were sold without permission.
By 1995 this became a major legal battle and Stephens in March filed a motion for partial summary judgment against the Bank of Louisville for three counts. First for establishing a custodial account that was not approved by the commissioner. Secondly for holding Kentucky Central's securities in the Custodial Account as collateral to secure an obligation of Kentucky Central to the Bank of Louisville in violation of state law which requires securities in custodial accounts to remain property of the insurer and not the custodial bank. Lastly for transferring securities in the custodial account in the Bank's own name, selling them, and applying the proceeds to Notes which were not due or in default which violates a number of state laws. Especially since the securities are in place to benefit and provide protection to the insurer's policy holders and creditors.
In addition Stephens asks Stites and Harbison to perform an internal investigation into the matter. On August 15th, 1995, Porter, Wright, Morris, and Arthur is hired to look into the transaction. They were tasked to see if their was a conflict of interest in handling legal work for Kentucky Central and Bank of Louisville. By the early part of September they completed the report and returned five copies. One of the copies was sent to Stephens and one went to Beshear. After reviewing the report, Stephens on September 18th, asks Stites and Harbison to block five lawyers including Beshear from continuing to work on behalf of Kentucky Central. Beshear was removed from representation.
One week later, on Sept 26th, Judge Graham shuts down the investigation and has the reports returned to Porter, Wright, Morris, and Arthur. This is the same Judge Graham who presided over the Fletcher "investigation" and is currently working for Beshear's campaign. The same guy who said he was a long time friend of Beshear.
Three months after Graham ends the investigation, Beshear files to run for US Senate against Senator McConnell.
Now it is time to fast forward to today. Beshear has repeatedly denied that he didn't recall anything about a secret ethics report by Porter, Wright, Morris, and Arthur. Beshear also says he doesn't remember being removed from the legal process in liquidating Kentucky Central. Obviously, Beshear is lying. I find it difficult to believe that he can't remember being pulled from such a massive case that made headlines at the time. If he is lying about his involvement then it would make sense he would lie about his lack of knowledge with regards to the report.
Which leads me to ask why he is trying to cover all of this up? Why is he denying involvement? Is he afraid he might be found guilty of collaboration to commit fraud? I want to know what role Beshear might have played in an apparent attempt to defraud Kentucky Central. The only way to know more is if the courts decide to open up the secret report sealed by Judge Graham. Hopefully, Franklin Circuit Judge Thomas Wingate, will agree to open up the records when he holds another hearing on the matter October 8th.
It is starting to look like Beshear's claim to bring "ethics back to Frankfort" might prove as empty as his claim that casinos will solve all that ails Kentucky.
