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Editor's note: This story has been updated to include a denial by Murlene Wilkes's sister, Carol Lindsey, regarding the substance of her sister's testimony before independent counsel Steve Branchflower, and updates testimony by former Harbor Adjustment Service claims adjuster Johanna Grasso.

A key witness in the "Troopergate" investigation of Alaska Gov. Sarah Palin has backed off an earlier defense of Palin and now says the governor's associates applied pressure to deny workers compensation to her estranged ex-brother-in-law, according to three state officials briefed on the case.

In reversing earlier testimony, Murlene Wilkes, owner of Harbor Adjustment Service in Anchorage, told a state investigator that she received phone calls and personal visits from advisers to Palin, including her husband, Todd Palin, the officials said.

Wilkes said she was told to deny workers compensation to Trooper Mike Wooten, the ex-brother-in-law, because he supposedly was lying about his physical condition, according to the officials who spoke on condition of anonymity because the investigation of Palin is still underway.

After becoming Alaska's governor in December 2006, Palin launched what looks like a vendetta against Wooten, who was involved in a bitter divorce and child custody battle with Palin's sister.

Palin, her husband and some of her senior aides argued that Wooten deserved to be fired for misconduct, including alleged threats to the governor's family. Todd Palin also was circulating a photo of Wooten on a snowmobile while the trooper was out on workers comp.

The family feud with Wooten became a political liability for Palin when she fired Public Safety Commissioner Walt Monegan in July. Monegan blamed his firing on his refusal to fire Wooten.

The state's Legislative Council with a Republican majority approved an investigation into Monegan's firing that Palin first welcomed but then turned against after she was selected in late August to be the Republican vice presidential candidate.

Steve Branchflower, a former federal prosecutor hired to handle the probe, has vowed to issue a report by Oct. 10, despite the refusal of Todd Palin and several top Palin aides to give depositions or otherwise cooperate.

Though there was earlier evidence that Gov. Palin's aides and her husband challenged Wooten's workers comp for a back injury, Wilkes's reported reversal could add to the appearance of wrongdoing because Wilkes recently succeeded in renewing her company's $1.2 million state contract despite lower competing bids.

When the contract was renewed this year, Wilkes's firm got a raise to $1.5 million even though there were at least three other bids that came in at $1.2 million. One losing firm has appealed the contract award.

In the recent interview with Branchflower, Wilkes said it was implied that if she didn't deny Wooten's claim, she would lose the contract, according to the state officials knowledgeable about the probe.

Wooten's compensation claim was denied. The adjuster who signed a form denying Wooten benefits was Johanna Grasso, who used to be employed by Wilkes's firm Harbor Adjustment Service. But it is unknown if the denial of Wooten's benefits was due to interference from Palin's office.

Important Witness

In a legislative hearing on Sept. 12, Branchflower described Wilkes as an "especially important" witness because he had received a tip in August that "someone from the governor's office or someone from the state" advised Wilkes to deny Wooten's claim.

Branchflower said that when he first called Wilkes, she denied ever talking to anyone in the governor's office about the Wooten file. She also insisted that she had never seen a photo of Wooten on a snowmobile.

After that initial interview, however, Branchflower said one of Wilkes's employees who was handling Wooten's claim called an investigative tip line and said Wilkes had confided "something to the effect that either the governor or the governor's office wanted this claim denied."

Branchflower quoted the employee as saying she didn't "care if it's the president who wants the claim denied. I'm not going to deny it unless I have the medical evidence to do that."

Branchflower said he felt that Wilkes was possibly "not truthful" in her initial comments and should be required to give a sworn statement.

"She obviously is a key player because she handles all of the workmen's compensation claims for the state of Alaska," Branchflower said. "She may have a financial motive," he added, noting her contract with the state. [Anchorage Daily News, Sept. 13, 2008]

Two weeks ago, Branchflower confronted Wilkes with evidence - including the statements by the co-worker - contradicting Wilkes's previous answers, according to the three state officials briefed on the developments.

Wilkes then told Branchflower that she had received phone calls and personal visits from Palin's associates, including the governor's husband, showing her photos of Wooten on the snowmobile and telling her to deny his workers comp claims because he lied about his physical condition, the officials said.

However, Wilkes's sister, Carol Lindsey, in a series of email exchanges, vehemently denied that her sister changed her story during her testimony. Lindsey said the suggestion that Wilkes recanted her previous statement was an "outright lie." 

"I can only say that [Murlene] will tell anyone and everyone who asks her that she gave a statement and she has never changed that statement," Lindsey said. "Beyond that I have no information. The story that she has changed her statement is a lie. You could ask her."

A message left for Wilkes at Harbor Adjustment late Wednesday was not returned. Her attorney, Robert Erwin, a former Alaska Supreme Court justice, was out of the office Wednesday afternoon and did not return a message left for him. 

Erwin's daughter, attorney Roberta Erwin, represented Palin's sister, Molly McCann, in divorce proceedings from Wooten.

Lindsey did not say whether Wilkes told her the substance of her testimony.

"I do not know the particulars of the case as this is a confidential matter," Lindsey said in an email.

But Grasso insists there was intervention in Wooten's case from the governor's office. 

At a hearing a this month where he sought authorization from the Legislative Council to issue subpoenas-one of which was for Wilkes-in the case Branchflower he read a portion of Grasso's testimony related to the request by Palin's office to deny Wooten his benefits.

"Well I remember at one point in the conversation she had mentioned or said something to the effect that either the governor or the governor's office wanted this claim denied and I remember my response being, why? I don't care if it's the president that wants the claim denied I'm not going to deny it unless I have the medical evidence to do that," Grasso testified, according to Branchflower.

It is unknown whether Branchflower will conclude that any laws were broken as a result of Palin's alleged interference in her ex-brother-in-law's workers comp case. Palin has denied any wrongdoing.

Rogue Investigation

Immediately after becoming Alaska's governor, Palin - along with her husband and senior aides - conducted what amounted to a rogue investigation into suspicions that Wooten was faking a job-related injury, according to state documents, law enforcement officials and former aides to Palin.

A little-noticed passage in a transcript of a conversation between Frank Bailey, Palin's director of boards and commissions, and Alaska State Trooper Lt. Rodney Dial shows that Palin's office had developed information against Wooten that was turned over to the state's workers compensation board, purportedly to prove that Wooten was not too sick or injured to work.

In the Feb. 28, 2008, conversation with Dial, Bailey disclosed that Gov. Palin and her husband had uncovered information about the trooper that was not publicly available and had collected statements about Wooten going "snowmachining" when he was out on workers comp for a back injury.

"The situation where [Wooten] declared workers comp, but then was caught on an eight-mile snowmachining [sic] trip days - days after, you know, that - that started coming up there," Bailey said. "So we collected statements that we forwarded on to workers comp."

According to John Cyr, executive director of the Public Safety Employees Association which represents Wooten and other state troopers, Wooten was approved for workers comp benefits in January 2007 because he had suffered a back injury when he pulled a dead body from a wrecked automobile and slipped on icy pavement.

After Wooten started receiving workers comp, Todd Palin began following him around "snapping pictures," Cyr said.

"Frank Bailey was getting people to say that [Wooten] was lying on his workers comp form," Cyr said. "The governor's family was following Mike around everywhere. They forwarded that information to the workers comp division."

Also in January 2007, Todd Palin invited Palin's new Public Safety Commissioner Monegan to the governor's office, where Todd Palin urged Monegan to reopen the Wooten case. After checking on it, Monegan said he informed Todd Palin that he couldn't do anything because the matter had been processed and the case was closed.

In an interview with the Washington Post, Monegan said that a few days later, the governor also called him about the Wooten matter and he gave her the same answer. Monegan said Gov. Palin brought the issue up again in a February 2007 meeting at the state capitol, prompting a warning that she should back off.

Cyr said Wooten received his benefits totaling $11,000 without any problems until "somewhere between the end of March and the first of April."

Then, "out of nowhere [Wooten's] workers comp claim was contravened, which basically means he got a letter saying he wasn't entitled to benefits anymore," Cyr said in an interview.

After Wooten "hired an attorney and filed a counterclaim against the state," there was a settlement in November 2007 in which Wooten underwent a back operation, Cyr said.

"This was a serious injury and he was flat broke and had to file for bankruptcy because his claims were denied," Cyr said, accusing Palin of abusing her power. "There was absolutely a personal vendetta against this trooper by the governor and the governor's staff."

According to documents in Wooten's case, another apparent factor in denying his disability claim was a preexisting condition from the trooper's days in the U.S. Air Force.

Branchflower also has zeroed in on a routing slip dated Aug. 21 - a week before John McCain settled on Palin as his running mate - from the Alaska Department of Labor and Workforce Development.

The routing slip indicated that Wooten's workers comp file was pulled and sent to the attention of Mike Mongale, a state manager with the workers compensation division.

"Wooten, as requested," the routing slip says, which was made out to the attention of "Mike Mongale."

"A request came in to return all of Wooten's [workers comp] files to Juneau [the state capital]," according to a note and routing slip faxed to Cyr from the workers compensation division. "The person who asked to route the files was told the files were being copied for the governor."

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