Carolina Investors case may bring stiff punishments

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The state grand jury is investigating the collapse of Pickens-based Carolina Investors, but McMaster wouldn't discuss specifics of the probe or the likelihood of indictments, citing the panel's secret deliberations. To date, no one from either company has been charged.

McMaster said he expects the investigation to go well into 2004.

"It is hard to predict how long something like this will last, but also it would be improper, inappropriate to suggest how long it might last because that may have some bearing or some reflection on something," McMaster said.

Under the state's new securities law, anyone convicted of fraud in a case in which a customer loses less than $1,000 — or no loss — is guilty of a misdemeanor and can receive three years in jail and a $30,000 fine, McMaster said.

If an investor lost more than $1,000 but less than $20,000, it is a five-year felony and a fine at the discretion of the judge, McMaster said. If $20,000 or more is lost by an investor, it is considered a 10-year felony with a fine of up to $50,000, he said.

"Any grand jury investigation typically takes months to conclude," McMaster said. "Indictments could come at any time during the course of the investigation, just depending on where the information leads."

An estimated 8,000 people — mostly from the Upstate — stand to lose $275 million in Carolina Investors, which sold notes and debentures to South Carolina residents. The company closed in March.

Both Carolina Investors and Columbia-based HomeGold, a mortgage company, filed for bankruptcy protection. Bill Calloway, an attorney for HomeGold, couldn't be reached for comment.

"I do believe that the attorney general's office under Henry McMaster's leadership is doing all it can do to expedite the investigation and bring it to a completion," said Sen. Larry Martin, R-Pickens, who authored the new securities law. "It's such a complex, huge case involving a lot of different people, both here in Pickens and in Lexington."

He added his constituents are frustrated with the amount of time the investigation is taking. "They're not optimistic about a great deal of recovery," Martin said. "The mood is pretty somber in that respect."

The state grand jury is just one element of the investigation. State and federal officials, including Strom Thurmond Jr., the U.S. attorney for South Carolina, also are involved.

In Greenville last week to outline a gun violence reduction initiative, Thurmond said, "I can tell you we're working on it, but I can't comment on a pending investigation beyond that."

McMaster said securities violations can occur through "material misrepresentation" — false or misleading information an investor relies on to make a financial decision.

At a Pickens Rotary Club lunch meeting last week, McMaster was asked whether the presence of a prospectus — a formal written offer to sell securities that outlines risks — protects anyone who misrepresents financial information.

"The answer is not necessarily," McMaster said.

Carolina Investors notes and debentures weren't insured by any state or federal agency. Money raised from the sale of those instruments was used to support HomeGold, which lost more than $168 million between 2000 and 2002, according to court records.

McMaster is using the jurisdiction of the state grand jury, which he got in June as a result of Martin's bill. The panel has the power to subpoena witnesses and business records.

"It's identical to the power that the federal grand juries have," McMaster said. "So that's a very powerful thing."