Leaked Report Says Palin's Trust Fund Could Violate Ethics Act

Report recommends "corrective action" to avoid a formal hearing.

WASHINGTON, July 21, 2009— -- An independent investigator has found evidence that Alaska Gov. Sarah Palin may have violated ethics laws by accepting private donations to pay her legal debts.

It's the latest legal distraction for the former vice presidential candidate as she prepares to leave office this weekend, and one thick with irony -- the same vehicle Palin is using to fight ethics charges is now being called a potential ethics violation itself.

According to a leaked confidential report filed on July 14, State Personnel Board investigator Thomas Daniel found there is probable cause to believe Palin used or attempted to use her official position for personal gain because she authorized the creation of the trust as the "official" legal defense fund.

His report states: "I find probable cause to believe that payment of the governor's legal fees by the Alaska Fund Trust will violate the Ethics Act prohibition against a public officer accepting gifts intended to influence performance of official duties."

An investigation was launched after Eagle River resident Kim Chatman issued a complaint on April 27, alleging that Palin was misusing her official position and accepting improper gifts.

In his report, Daniel said his interpretation of the ethics act is consistent with common sense.

An ordinary citizen facing legal charges is not likely to be able to generate donations to a legal defense fund, he wrote.

"In contrast, Governor Palin is able to generate donations because of the fact that she is a public official and a public figure," his report said. "Were it not for the fact that she is governor and a national political figure, it is unlikely that many citizens would donate money to her legal defense fund."

Palin was given a copy of the investigator's report a week ago, Chatman said Tuesday in an interview with The Associated Press.

"It's an absolute shame that she would continue to keep the Alaska Fund Trust Web site up and running," Chatman said.

Palin's Spokespeople Say the Report is Only Preliminary

A spokeswoman for the governor issued a statement saying the report is only preliminary.

"There is no final report. The Investigator is still confidentially reviewing this matter. It appears suspect that in the final days of the Governor's term, someone would again violate the law and announce a supposed conclusion before it is reached," Palin spokeswoman Meg Stapleton said.

Palin's private attorney Thomas Van Flein also insisted the investigations were not final.

"The resolution of the Trust Fund is not final. I have been working with the investigator regarding supplemental information. The matter is still pending," he said. "There has been no Board finding of an ethics violation and there is a detailed legal process to follow before there is a final resolution."

When reached by ABC News, Daniel declined to comment on the report.

"Preliminary investigations are confidential so I'm unable to talk about it," Daniel said.

Daniel did confirm to ABC News that the leaked copy of his report was authentic, but said "whoever made it public violated the confidentiality provision in the Ethics Act."

Palin's attorney is threatening legal action against Chatman, who he said he believes leaked the report.

"All options are open in terms of legal remedies. It is a clear violation of Alaska law that Mr. Daniel explicitly reviewed with Ms. Chatman prior to her illegal actions. We will be contacting the appropriate authorities for review and action," Van Flein said.

The Alaska Fund Trust was established on April 22, 2009, to help pay off debts stemming from multiple ethics complaints filed against the governor, most of which have been dismissed. Palin's close personal friend, Kristan Cole, is the fund's trustee.

Van Flein argues that since the governor had no role in the creation of the fund, she "cannot be found to have 'acted' ethically or otherwise when she has not acted at all."

"This is a grossly unfair portrayal to her. The trust was created by a top [Washington] D.C. lawyer, Randy Evans. The Governor has had no role in this and the Trust itself has been waiting for a legal determination before distributing any money," he wrote in a statement to ABC News.

Palin has said she owes more than $500,000 in legal fees. The governor cited the mounting toll of the ethics probes as one of the reasons she is leaving office.

The fund's official Web site at http://thealaskafundtrust.com states: "The Alaska Fund Trust is the official legal fund created to defend the integrity of the Alaska Governor's Office from an onslaught of political attacks launched against current Governor Sarah Palin, the First Family, and state-employed colleagues. These baseless accusations have cost Alaska more than $1 million in public monies to defend, and Governor Palin has incurred more than half a million dollars in personal debt defending her official actions as Governor."

The fund limits donations to $150 per person. Organizers declined to say how much it has raised, and had hoped to raise about $500,000. A Webathon last month brought in about $130,000 in pledges.

"We have not met our goal yet to raise enough money to cover her legal fees," Cole told ABC News.

The practical effect on Palin of Daniel's report will be more financial than anything else. It recommends that Palin refuse to accept payment from the defense fund, and that the complaint be resolved without a formal hearing before the Alaska Personnel Board.

Palin Spokespeople Caught Off-Guard

Around 6 p.m. ET, Palin's Twitter account @AKGovSarahPalin addressed the leaked report: "Re inaccurate story floating re:ethics violation/Legal Defense Fund;matter is still pending;new info was just requested even;no final report".

Before that, @AKGovSarahPalin's last tweets were about a speech she was set to deliver, in which she would "share gratefulness for honor of serving& speak to AKs destiny that incl contribution of energy/innovation/security to US." Palin announced her resignation announcement on July 3, 11 days before the report was issued.

Her spokesman David Murrow, reached on vacation in Texas, told ABC News, "This hit us out of left field."

The Associated Press contributed to this report.