On December 22, 1977, a mysterious woman approached young Frannie Hughes, at a store, and gave her a Christmas star. Frannie's father, Dr. Bob Hughes,' was very attracted to the woman and couldn't get her out of his mind. Suddenly, in January 1978, there she was in the emergency room at Memorial Hospital, the apparent victim of a car crash. She claimed that her name was Karen Parker, but as she became closer to Bob, she revealed that she was really Karen Peters and she'd run away with a file that would clear her father of illegal business dealings. Karen claimed she had no idea what was in the file, but a lot of people wanted it, including her fiancÚ, Walter Vested, who was the District Attorney in her hometown of Winterbrook. By February, Walter managed to find Karen in Oakdale and tried to enlist Bob's help in turning over the papers because they would expose Walter as well. Bob was on to him and refused. Shortly after, Karen's hotel room was ransacked, and she soon left town, frightened.
Walter wanted to find her before the thugs did and saw Bob as a way to get to her. He ordered thugs to scare Bob near the end of May 1978. When Karen heard about this, she phoned Bob and his son, attorney Tom Hughes, and offered to turn over the infamous file. Bob went to Karen week later to warn her that Walter was in on the illegal dealings. Karen agreed to come back to Oakdale with Bob. Finally, in early September, Walter arrived at Bob's home and pulled a gun on Bob and Karen. In the fight that followed, Walter was killed, but Bob soon discovered that Karen's father, Judge Peters, was just as corrupt as Walter. In fact, they had both been involved in a crime syndicate. Bob felt he owed it to Karen to tell her before she read it in the papers.
At that point, Bob's longtime nemesis, Dr. John Dixon got involved in this. Before dying at Memorial, Walter told John that Bob was bad news for Karen. However, John had his own connection to Judge Peters. John filled Karen in on how her father had paid for his medical schooling and how much John admired the man. Karen agreed that she should fight the charges against her father and John vowed to help her every step of the way. Bob was sure the legal battle was a lost cause and Karen's father was, indeed, corrupt. He warned Karen that John was using her to get to him, but Karen dismissed this -- John Dixon was her friend. As luck would have it, both Bob and John were duped. In November 1978, it was revealed that Karen was a co-conspirator in the syndicate! Karen went to prison for her crimes.