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Securities proposal on legislative fast track
By Andy Brack
SC Statehouse Report



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APRIL 13, 2003 - - Terry Moore's story isn't pretty. He's sure he's lost his life savings - - $70,000 - - because he trusted a hometown institution that wasn't federally insured.

The retired Easley police officer is one of 8,000 people, mostly from the northwestern part of the state, who put money in Carolina Investors, a hometown fixture that sold unsecured securities to the public and gave proceeds to a mortgage business operated by its parent company.

On March 24, many were surprised when Carolina Investors closed doors to its four offices and said it didn't have money to operate. People around Pickens, Easley and Anderson thought the tens of millions they had stored in the institution were safe. Sure, they knew it wasn't a bank and their investment had more risk than a low-interest certificate of deposit. But for them, Carolina Investors had been around for 40 years and offered a greater return than alternatives.

When the wholly-owned subsidiary of HomeGold Financial Inc., closed its doors, investors had no access to their accounts. Since then, 500 investors joined a class-action lawsuit that alleges fraud, civil conspiracy, deception and more. This week, Carolina Investors filed for bankruptcy protection. It said it had assets of $50,000 or less and debts of more than $100 million. In bankruptcy papers filed last week by the parent company, HomeGold said it owed more than $275 million to Carolina Investors.

In short, it's a big financial mess and a lot of people are facing tough times.

"About everything I had saved now is down the drain," said Moore, who joined a class-action lawsuit to try to recover some of his money. "$70,000 - - that hits you hard. There needs to be some legislation (because) we have been misrepresented to and misled."

On April 3, S.C. Sen. Larry Martin, a Pickens Republican, filed a bill that sought to redress grievances of people like Moore.

"The day they closed their doors is the day this thing got my attention," said Martin, who heard from more than 100 people about what they had in Carolina Investors.

While Martin said South Carolina generally has good securities laws, he said his bill will make it tougher for companies to take advantage of trusting investors. The bill, which is on the fast track and is expected to get final approval by the Senate in the coming week, calls for three new provisions:

  • To allow the State Grand Jury to investigate securities fraud allegations.
  • To make anyone who "knowingly and substantially assists" someone to commit securities fraud become liable for their acts.
  • To extend the statute of limitations for cases involving securities deceptions.

Attorney General Henry McMaster said allowing the State Grand Jury to probe securities allegations would give his office "the most powerful investigatory tool possible" to help sort out allegations of white-collar wrongdoing.

"It should give some comfort [to small investors in Carolina Investors] that if this becomes law, the state authority would have the tools to get the answers to every question," McMaster said.

Clemson lawyer Chris Olson, one of the attorneys handling the class action suit, said involvement of the State Grand Jury in the process would be a great help in protecting unwitting victims of securities fraud.

"The state can come up with information that we might not otherwise have gotten," he said. In turn, that could help victims get more information to help any civil cases that seek to recover monies lost by folks like Moore.

While the proposal to toughen securities laws appears headed for passage, one thing is for sure: the loss of millions of dollars from the pockets of retirees and others throughout Oconee, Anderson and Pickens counties will have a devastating long-term impact.

"It will dramatically affect this part of the Upstate in a very, very negative way," Olson said.

In spite of the financial misery, Moore sounded a hopeful note: "Maybe this new legislation will keep this from happening to anybody else."


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