COLUMBIA -- A grand jury has indicted John M. "Jack" Sterling Jr., former chairman and CEO of HomeGold Financial Inc., on three criminal counts in the collapse of Carolina Investors Inc., according to indictments unsealed Thursday.

"This investigation is still moving forward," state Attorney General Henry McMaster said. "We're still gathering evidence, and it's too early to say at this point what will happen next."

The 68-year-old longtime Greenville businessman becomes the sixth person to be charged in the three-year investigation into the March 2003 failure of Carolina Investors that cost an estimated 12,000 people $278 million.

Sterling's attorneys issued a statement Thursday saying their client "is innocent of the charges brought against him" and that he "looks forward to his day in court and fully expects to be exonerated."

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"As a member of the board of directors of HomeGold Financial and Carolina Investors during periods of financial difficulties, Jack Sterling participated with other directors to provide guidance to senior management for the benefit of shareholders and investors," the lawyers said.

Sterling became HomeGold chairman in January 1991, according to company records. He also was the company's chief executive officer and resigned as a director on March 20, 2003, days before Carolina Investors shut its doors.

In those various positions, Sterling exercised control over business operations of HomeGold and "its alter-ego," Carolina Investors, according to the indictment.

Sterling's 24-page indictment alleges he and others who weren't named manipulated HomeGold's financial statements, defrauded investors and avoided proper oversight by the Securities and Exchange Commission for eight years.

McMaster said prosecutors intend "to prove that Mr. Sterling did knowingly and willfully participate in the large-scale securities fraud and conspiracy which led to the financial collapse of Carolina Investors."

Sterling misled investors about the financial health of the company to convince them to invest money or keep their money in Carolina Investors, the indictment charges. In addition, Sterling and other company officials gave raises and bonuses to employees who misled investors, it alleges.

He also made false or misleading statements to the South Carolina Securities Commission so Carolina Investors could continue offering its financial products to the public, the indictment alleges.

Sterling isn't charged with any federal crime.

Sterling's indictment alleges two counts of securities fraud and one count of conspiracy. If convicted on all counts, he could face 25 years in prison and more than $105,000 in fines, McMaster said.

A bond hearing is scheduled for Monday at noon at the Richland County courthouse. Sterling is represented by E. Bart Daniel, a former U.S. attorney, and Matthew R. Hubbell, a former assistant U.S. attorney.

HomeGold, a Columbia-based lender specializing in high-risk residential mortgages, was a publicly traded company. Pickens-based Carolina Investors, formed in 1963 by the late Dwight Holder, sold unsecured notes and debentures to the public and the proceeds were used increasingly over the years to finance HomeGold's money-losing operations, according to prosecutors.

The indictment alleges that with HomeGold struggling financially, Sterling and others manipulated the intercompany debt and withheld from other Carolina Investors' directors, government regulators and customers the fact that HomeGold couldn't repay the money.

By convincing state officials that HomeGold was financially stable, the company kept its mortgage lending licenses, continued to operate and sell debt securities to the public, the indictment charges.

If audited financial statements had shown HomeGold was insolvent, its licenses wouldn't have been renewed, according to the indictment.

To ensure a "positive" financial appearance in response to repeated operating losses, the boards of HomeGold and Carolina Investors approved a series of internal transactions that were designed to convince various state regulators that HomeGold was solvent, the indictment alleges.

Sterling and others, the indictment alleges, "as a part of the course of business to defraud investors, manipulated the financial statements of HomeGold to show a positive net equity in a variety of ways."

In addition, "Despite the massive financial losses, continuously unprofitable operations, continuing financial instability of HomeGold and the increasing inter-company debt," Carolina Investors in April 2002 announced a formal written offer to sell to the public $180 million of floating rate notes and $40 million of subordinated debentures, the indictment alleges.

A prospectus issued in connection with the sale said auditors had substantial doubt as to whether Carolina Investors would stay in business. The auditors also said it was probable that Carolina Investors wouldn't collect the entire amount owed by HomeGold, according to Sterling's indictment.

After HomeGold's chief financial officer resigned in part due to "his firm belief" that the sale of securities should stop immediately because repayment of the debt was no longer possible -- and his resignation letter was given to the company's officers and directors, including Sterling -- Carolina Investors continued to sell securities to the public and "upstream" the money to HomeGold, the indictment alleges.

Even with the auditors' warnings, HomeGold's unsuccessful efforts to sell its retail mortgage operations, its retention of bankruptcy counsel and the resignation of the CFO and other company executives, HomeGold officials continued to spend money "lavishly and sustain substantial losses," according to the indictment.

Carolina Investors sold more than $74 million of debt securities to the public between April 1 and Dec. 31, 2002, and more than $16 million from Jan. 1 through March 21, 2003.

Between January 2002 and March 2003, HomeGold also extended about $10 million to start a payday lending company, FlexCheck Holdings LLC, as part of a $15 million funding commitment, according to the indictment.

That commitment was inadequately disclosed in SEC filings, in proxy statements issued to HomeGold shareholders and in supplements to the Carolina Investors prospectus, the indictment alleges.

"The inadequate and misleading disclosures regarding FlexCheck operated as a fraud upon investors in HomeGold and Carolina Investors securities," it alleges.

HomeGold ran out of money in March 2003 and Carolina Investors failed March 21, prosecutors said. Both companies subsequently filed for bankruptcy protection.

Sterling's indictment alleges that beginning in 1995, Sterling was among those who planned and carried out "a course of business" to defraud investors by offering illegal and unregistered securities. Sterling and others used money from securities offerings to finance HomeGold's out-of-state business operations while claiming a federal intrastate exemption, the indictment alleges.

That avoided proper oversight by the SEC from 1995 until March 2003, it alleges.

Sterling and others defrauded investors when Carolina Investors, in poor financial condition and with potential repayment to investors increasingly unlikely, marketed high-interest rates for securities to attract new customers, the indictment charges.

At the time, banks were dramatically lowering their rates. The increased advertising to promote the higher rates was part of an effort "to attract unsophisticated investors to buy Carolina Investors securities," the indictment alleges.

Meanwhile, a trial for former HomeGold Chief Executive Officer Ronald J. Sheppard, who has been indicted on 11 criminal counts, including securities, bank and insurance fraud, has been moved by a judge from October to January.

Sheppard has pleaded not guilty.

Former HomeGold Chief Financial Officer Karen Miller has pleaded guilty to conspiracy. Her sentencing has been deferred while she cooperates with the state grand jury investigation, prosecutors said.

Three former Carolina Investors officers, including former Lt. Gov. Earle Morris Jr., have been convicted of wrongdoing as part of the government's investigation.

Two -- former Carolina Investors President Larry C. Owen and his wife, Anne W. Owen, the company's former senior vice president of investments -- are serving prison or jail terms.