COVINGTON — In a civil lawsuit that reads more like an indictment, an Ashland Inc. shareholder is asking a Kenton County judge to hold the company's executives and directors personally responsible for what the suit describes as accounting improprieties, environmental penalties and financial problems that have rocked Ashland in recent years.

        The 70-page lawsuit was filed in Kenton County Circuit Court by the Central Laborers' Pension Fund, an arm of the AFL-CIO-affiliated Laborers' International Union of North America. In addition to the company, defendants include outgoing Ashland chairman and CEO Paul Chellgren, chief financial officer J. Marvin Quin, two former executives, the board of directors and Ashland's longtime auditing firm, Ernst & Young.

        The pension fund asserts that the company has engaged in numerous acts of wrongdoing during the Chellgren era. Although the 59-year CEO is taking an early retirement in November after an affair with a former employee, the union said Ashland directors have generally acquiesced to him.

        “Because of his domination and control over Ashland, Chellgren operates Ashland as a private fiefdom, despite its public ownership, and — through a combination of abuse of his control of Ashland, waste of its assets, gross mismanagement and active and deliberate dishonesty — has severely damaged what was once a valuable and profitable corporate franchise — without answering to anyone,” the lawsuit states.

        Ashland spokesman Stan Lampe said the company had no response to the suit. “Ashland has a longstanding policy to not comment on pending litigation,” he said Tuesday.

        An Ernst & Young spokesman in New York also declined comment because the company had not seen the lawsuit.

        The shareholder lawsuit cites as evidence of executive wrongdoing and lack of oversight by directors and auditors:

        The overstatement of corporate earnings by $18 million from 1999 to 2001. Ashland blamed APAC division executives in Manassas, Va., for revenue falsifications that made the road-construction unit appear more profitable than it was. The lawsuit charges that the fraud extended to the accounting of the Superfos road-construction acquisition in 1999.

        The pension fund's lawsuit said Mr. Chellgren and a former vice president, James Boyd, “perpetrated this ongoing fraud for two years to prevent ... the investment community from discovering their ruse.” It said management took a “head in the sand” approach instead of adequately investigating how Ernst & Young missed the irregularities.

        Repeated violations of environmental regulations, which has cost Ashland millions of dollars in the past few years. The lawsuit cites of $58 million in 1998 and $32.5 million in 1999. It also cited Ashland's guilty plea in May to criminal charges stemming from a 1997 refinery explosion in Minnesota that injured five employees.

        It also points out that, while the number of Ashland's Superfund cleanup sites has grown to 96 from 72 since 1994, the company's environment remediation reserves remain unchanged at $167 million.

        Excessive executive and director compensation. While Ashland's share price has badly underperformed the Amex Oil & Gas stock index, the lawsuit states that Mr. Chellgren pocketed $5.4 million in cash compensation and received another $1.3 million from stock option exercises before disclosures of adverse financial news in 2001 and 2002.

        As another example, the lawsuit spotlights the severance contract for Mr. Boyd, who left the company in January. For keeping quiet about the APAC accounting irregularities, the suit says Mr. Boyd will receive $956,000 in salary over the next two years and $150,000 for office space and expenses.

        To undo the damage, the lawsuit asks for an unspecified amount of restitution, punitive damages and disgorgement of ill-gotten gains, and an accounting of defendants' insider trading.

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